B205B Final Exam Review – Essay part

QUESTION 01
Entrepreneurial marketing (EM) is used to describe the marketing undertaken by small
entrepreneurial ventures.
➢ Discuss the principles of this form of marketing and distinguish between entrepreneurial
marketing (EM) and corporate traditional marketing (CTM).

MARKING GUIDE
The majority of marketing theory and practice has been developed in the context of large
businesses. This can be referred to as corporate traditional Marketing (CTM) or administrative
marketing (AM). Entrepreneurial marketing (EM) is used to describe the marketing undertaken
by small entrepreneurial ventures, often at start-up or early growth phase. It should be noted that
entrepreneurial approaches to marketing are not the sole preserve of small firms, and the term
can be applied to larger or established firms that adopt innovative marketing approaches.
However, as firms grow and mature their approach to marketing tends to become highly
structured and routinized and less innovative.
Although difficult to characterize precisely, entrepreneurial marketing has been described as
informal, dynamic, responsive to customer needs and often simple in its design and execution.
Marketing is often undertaken by the owner of the business, who is likely to be a generalist,
rather than a marketing expert and will typically be undertaken part-time alongside other
activities. These features suggest a more seamless and integrated approach to marketing in small
ventures than is often evident in administrative marketing.
Marketing in small firms is often assessed in the context of larger firms, and has been judged
reactive, short-term and non-strategic. Similarly, small firms are often considered to be unaware
of market trends as they do not undertake formal market research. However, it is the lack of
long-term and fixed plans that allows entrepreneurial marketing to be responsive and flexible.
Relationship with customers
One key characteristic of entrepreneurial marketing is that the entrepreneur or the entrepreneurial
team are often very close to their customers, interacting with them directly. They are therefore
able to understand customer needs and, given the increased flexibility associated with small

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businesses can often respond rapidly to these needs. It is this closeness to the customer that
prevents the need for formal market research.
Larger firms are often more distant from their customers and staff interacting with customers are
distinct from those developing or making products or services. A key process for interacting with
customers or other stakeholders is networking. Hence networking has been identified as a key
process in entrepreneurial marketing.
Access to resources’
Whilst access to resources is important for all types of marketing, entrepreneurial marketing in
particular is seen as ‘based on the resources available at the moment’. The acquisition of certain
resources may be difficult. Entrepreneurs will shape their marketing strategies according to the
resources they have at hand or can readily acquire, rather than base their business and marketing
strategy solely on customer needs. Similar to administrative marketing, entrepreneurial
marketing also seeks to meet the desires, needs and motives of both the entrepreneur as well as
the customer. The starting place for an entrepreneurial firm and therefore entrepreneurial
marketing activity is and must be the entrepreneur’.

QUESTION 02

The relationship between culture, innovation and entrepreneurship has attracted considerable
attention by governments around the world.
➢ How do the cultural dimensions affect entrepreneurship and innovation?

MARKING GUIDE

The relationship between culture, innovation and entrepreneurship has attracted considerable
attention by governments around the world as they seek to promote economic and social
development in their countries and regions. In an early work, Shapero and Sokol (1982) observed
that social systems that emphasize innovation, risk taking, and independence are more likely to
produce entrepreneurial activities than those with contrasting values. Other studies have
suggested a that a high score on Hofstede’s concept of Uncertainty Avoidance is linked to a
lower capacity to innovate, the idea being that such cultures are less willing to make large
investments in research and development (e.g. Shane, 1995). Similarly, Meuller and Thomas
(2001) found more positive attitudes towards innovation and entrepreneurship amongst students

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who originated from cultures that scored higher on Individualism and lower with respect to
Uncertainty Avoidance. In their review of the research evidence, Hayton et al. (2002) reviewed
21 studies published since the 1980s and found that the Hofstede dimensions were the most
widely used. They raised a number of important methodological issues, including the question of
how to deal with culturally heterogeneous regions in a single country (ibid.). They also pointed
out that it was important to examine interactions between the different cultural dimensions and
the way in which institutional factors, such as regulatory systems and industry structures might
combine with culture to influence innovation and entrepreneurship (ibid).
Autio et al. (2013) examined the evidence on entrepreneurial culture, testing a range of
assumptions including the widely-held belief that countries with a more Individualist culture (as
indicated by Hofstede’s third cultural dimension), were more entrepreneurial than their more
Collectivist counterparts. Having concluded that some previous findings were limited due to
inappropriate research designs5, they conducted their own statistical analysis using two large
datasets, the Global Entrepreneurship Monitor (GEM) and the GLOBE dataset on national
cultural practices, which covered 40 countries and more than 23,000 entrepreneurs. Some of their
findings supported existing views, for example:
•Countries scoring higher on Individualism did tend to have more entrepreneurs, which in this
case meant people trying to start or already running new businesses.
•Higher Uncertainty Avoidance was associated with lower levels of entrepreneurial entry.
However, they also found that when it came to entrepreneurs’ ambitions for growth, countries
with more Collectivist cultures were more ambitious in the sense of wanting to create more jobs.
Furthermore, while probing for the underlying reasons, they realized that the relationship
between culture, innovation and entrepreneurship was far from straightforward: We discovered
that while individualistic countries may have more entrepreneurs, entrepreneurs in collectivist
countries expect to create more jobs. In other words, having more entrepreneurs is not
necessarily better.
Why would this be? We think this is for two reasons. First, collectivist countries tend to have
more so-called ‘societal risk sharing’. They tend to have better safety nets. They also tend to
have more subsidies available to share the risk in R&D, for example. In individualistic countries,
in contrast, less risk sharing may mean less risk taking and less growth ambition.

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Second, entrepreneurs in collectivist countries may be more likely to see business growth as their
societal responsibility. New jobs benefit the society, so in countries where the collective benefit
is placed above individual benefit, this might spur entrepreneurs to pursue more ambitious
growth.
So, what are the implications of this if you want to nurture a culture of entrepreneurship?
First, there is no one ‘best’ entrepreneurial culture. All cultures have their strengths and
weaknesses when it comes to unlocking entrepreneurship. The secret is knowing what to do in
different cultures.
Second, individualist countries should not be complacent. Yes, they do have more entrepreneurs.
But they are challenged to nudge their entrepreneurs to take more risks and pursue growth. Here,
a little bit of societal risk sharing might help enhance the entrepreneurial dynamic.
Third, collectivist societies are not bad for entrepreneurship. In highly collectivist countries such
as Japan or Sweden, if you get more people to start new businesses, the societal infrastructure
and cultural norms will push these to seek growth. The challenge, then, is getting more people to
try entrepreneurship. Promoting inspiring role models could therefore prove effective in such
societies. Any culture can nurture entrepreneurship. You just need to know what to do in your
culture, (Autio, 2014).
These findings were echoed in another study, which analyzed datasets of culture and innovation
from 62 countries over a period of more than two decades (Taylor and Wilson, 2012). It
identified a strong association between innovation and measures of Individualism, even after
controlling for other influences. However, the authors also found that certain forms of
collectivism (i.e. patriotism and nationalism) appeared to promote innovation at the national
level.
Lastly, there are a few studies that have attempted to examine the impact of culture at multiple
levels of analysis. For example, Rauch et al. (2013) looked at both national culture and the
cultural orientations of owners, finding that each of them could help to explain variations in
levels of innovation and growth. Huggins and Thompson (2015) focused on local cultures, taking
Wales as a reference region, comparing the country with other UK regions and analyzing cultural
differences in localities within Wales. They found considerable variability, across both regions
and localities and highlighted the role played by other factors, including Wales’s industrial
heritage. As with Autio et al. (2013), the findings suggest that efforts to encourage innovation

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and entrepreneurship need to be sensitive to local conditions, and also recognize that economic
growth is not the only goal:
It is not necessarily clear that the success of a locality or region should be entirely based upon
economic measures of success, and whilst some place-based cultures may not encourage the
development of a complementary thriving business and enterprise culture, they may provide
lifestyle benefits captured only in broader well-being measures.
issue.

QUESTION 03

There are different models that business organizations can select to organize their operations, and
market their products or services.

➢ Discuss the existing debate about the best way to run a commercial business (family
firms vs. corporations).

MARKING GUIDE
The first part of this question is taken from B205B, Block 03, section 3.4. The best type of firm
ownership is now a subject of fierce debate – family firms versus stock market dispersed
ownership.

Historical evidence on their relative performance has been mixed. The first of these, the
traditional family-owned firm, has sometimes been criticized as less likely to be outward-
looking, innovative and entrepreneurial.

The other type of business, which has grown in importance over the last two centuries, operates
via stock market ownership, with professional managers running the day-to-day operations,
company directors providing oversight on behalf of the shareholders. In the late twentieth
century, the received wisdom was that US firms were quicker than British firms to separate
ownership from control; that is, to switch from family-controlled firms to firms run by
professional managers. Berle and Means’ (1968) argument, outlined in their famous book ‘The
Modern Corporation and Private Property”, was that professional management was better than
management by owner family members and that this, indeed, explained the relative failure of

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British firms to flourish in the twentieth century in comparison with their counterparts in the
United States.

The lack of professionalism and enthusiasm of the second and third generations of firm founders
could, they argued, be behind a failure to innovate, with managers preferring to take dividends
out of the firm in the short term, rather than using the money to invest for the long term.

This argument, until recently unchallenged, suggested that family ownership was a recipe for
disaster – certainly in the longer term, regardless of the size of the firm.

Family firms vs. corporations – reviewing the evidence

However, was this true for Britain? Were British firms more family-oriented than comparable
US firms? After the limited liability acts of the 1850s, firm incorporation took off with thousands
of new companies in existing and new industries flooding the stock market. By 1900, the London
Stock Exchange was the largest stock market in the world. So, how does this compute with an
image of inward-looking family firms when companies could not be listed on the stock exchange
without two thirds of the share capital being in the hands of outside – not family – investors?

The business historian Les Hannah (2007) has argued that Berle and Means were simply wrong.
He says that board ownership in the average British company was as low as 13% by 1900, a
figure not achieved by the Americans till 30 years later. And he cites numbers of shareholders in
major British companies to support his case. By 1902, there were four major banks with over
5,000 shareholders each, rising to more than 15,000 each by 1915. Rutterford (2016) points out
that Lipton’s tea company, listed in 1888, announced at its first annual general meeting that it
had 74,000 shareholders. And railway companies, the dominant sector in 1900, had tens of
thousands of shareholders.

But it isn’t as clear cut as all that. Many small companies, which thrived as private firms but then
chose to raise some capital by floating on the stock exchange, could get around the two-thirds
share capital rule quite easily. They could either issue types of securities which had limited
voting powers (such as debentures or preference shares) or issue themselves with special shares
which had increased voting rights (such as founders’ shares or ‘A’ shares) (Cheffins et al., 2012).
Brewery companies were particularly good at this kind of thing, with brewery debentures as
popular as government bonds in the 1890s – despite having no voting rights. Companies such as

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Marks and Spencer and Rank Organization had non-voting shares well into the twentieth
century. And the Savoy Hotel fought off bids by Trust House Forte (THF) in the 1980s by
issuing lots of voting shares to the family owners. Despite holding a majority of shares, THF
could not get a majority of voting shares.

But most family firms, including Marks and Spencer, eventually diluted control as they
equalized share voting rights and returned time and again to the stock market for new injections
of capital. Family members often don’t have the funds to take up rights issue after rights issue.

QUESTION 04

The relationship between culture, innovation and entrepreneurship has attracted considerable
attention by governments around the world.
➢ Assess the influence of Hofstede’s’ cultural study on innovative and entrepreneurial
activity.
Advances in the development of information and communication technologies (ICTs) is
transforming business practices.
➢ Define digital entrepreneurship, and explain the different degrees/types of digital
entrepreneurship.

MARKING GUIDE

In this part of the question students need to assess the influence of Hofstede’s’ cultural study on
innovative and entrepreneurial activity.
Hofstede’s ideas have been widely adopted by researchers and practitioners and his work is
amongst the most highly-cited in the social sciences. Key findings have been replicated, though
there have been some critiques of the methods adopted and of the relevance of some of the
findings to twenty-first century contexts. The six dimensions have also been applied in research
on entrepreneurship, innovation and growth.
Having reviewed the findings of recent studies in this area, we have seen that the relationship
between culture, innovation and entrepreneurship is complex due to the way it interacts with
other factors, such as history, geography and economic infrastructure. From a policy perspective
this means that, while it may be important to take culture into account, there are no simple
recipes for making your country, region or locality more innovative or entrepreneurial.

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What is digital entrepreneurship?

Digital entrepreneurship is the practice of pursuing new venture opportunities presented by new
media and internet technologies. It is similar to traditional entrepreneurship in that it consists of
identifying and pursuing entrepreneurial opportunities, creating a new enterprise and generating
a financial and/or social return. The main difference stems from the fact that in digital
entrepreneurship ‘some or all of the entrepreneurial venture take place digitally instead of in
more traditional formats’. The extent to which an enterprise may be considered as pursuing
digital entrepreneurship depends on the degree to which its key functions – production,
marketing, distribution and stakeholder management – take place on digital platforms. This
dependence on digital platforms is what makes digital entrepreneurship unique from all other
types of enterprise. This suggests that digital businesses face unique challenges and opportunities
with mode of entry, methods of producing and delivering products/services, capturing
payments/revenues, and managing stakeholder relationships.

Degree of digital entrepreneurship

To further illustrate the distinctiveness of digital entrepreneurship, it can be broken down into
three categories

A. Traditional small enterprises that do not rely on digital technology

Small enterprises whose main activities do not use digital technology can be seen as undertaking
traditional entrepreneurship. A study by Kyobe (2004) surveyed 99 small businesses in South
Africa to understand how and why they use information and communication technologies
(ICTs). Ten of the managers said they did not use computer systems at all while a few managers
said they made very limited use of ICTs. For example, travel firms that used telephones to make
bookings and reservations for clients found it a very slow and costly process. Medical
consultants who used old computers and keep patient records on manually maintained cards
found decision-making slow and complex. Small motor spare part shops and car dealers
possessed database packages but could not develop even simple databases for their parts, while
advanced payments were carried out using simple electronic calculators. These are examples of

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enterprises whose core activities do not rely on digital technology and cannot be considered as
pursing digital entrepreneurship.

B. Adopting and use digital technology to improve performance

Advances in ICTs have caused many traditional enterprises to embrace digital technology. In the
Kyobe (2004) study mentioned earlier, some respondents reported that adopting and using ICTs
to organize more of their functions and networks with suppliers, financiers and customers
enabled improvements to be made in customer services and costs reductions. For example,
managers of accounting and auditing firms reported that they used IT systems to generate
financial and management information, which they provide to customers in time. Managers of
hardware stores said they use database systems that allow users to access information on parts
and this enabled the stores to process orders in time. Managers of travel agencies said they use
automated booking and reservation systems to advice clients on the possibility of cheaper fares.
These enterprises are moving towards digital entrepreneurship in the sense that they are adopting
and using digital technology to innovate their operations and thereby reducing costs, improving
internal operations and customer services (Davidson and Vaast, 2010). However, the managers
refuse to describe their business as digital businesses (Kyobe, 2004).

C. Digital enterprises

Digital enterprises go beyond simply adopting and using ICT tools to improve isolated functions.
They use digital technology as the infrastructure to support their entire operations as well as to
manage stakeholder interactions. It is nearly impossible to disentangle business and social
processes from their underlying IT infrastructures. Table 3.1 provides examples of enterprises
that can be considered as examples of digital enterprises. All the enterprises were founded after
2000 and the founders give credit to the growth in the information and communication
technologies for their successful start-up and establishment. ICTs, and especially the internet
provide ‘opportunity to gain more efficient access to more, and more geographically distant,
prospective customers and other potential stakeholders than is possible in an offline
environment’ (Reuber and Fischer, 2011). They rely on the ICT infrastructure to manage the
entire value chain of their activities. One of the major challenges facing digital enterprises when
attempting to manage the entire value chain of their activities is logistics and transportation
challenges because they increase the complexity of the value chain (Cho, Ozment and Sink,

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2008). This complexity increases because although some digital enterprises are based in a single
country, their online presence gives them a global reach where they can easily access a wide
range of customers and partners.

QUESTION 05

Profitable trading is what most business is all about. Therefore, at regular intervals, a firm needs
to prepare a number of financial statements.
➢ Briefly define the three types of financial statements used by businesses and discuss the
balance sheet in more details.

MARKING GUIDE
Most limited companies and larger professional partnerships produce, at least annually, three
financial statements that summarize and present financial information in a manner that has
become fairly standardized in the finance and accounting world.
The three financial statements generally produced are the following:
1. Income statement – previously known in the UK as the ‘profit and loss account’, and
sometimes known elsewhere in the world as the ‘statement of financial performance’ or
‘statement of profit and loss’. The income statement covers a period of time (a month,
quarter or financial year). It shows the net profit/net income of a company during a
specific period of time.
2. Cash flow statement: Like the income statement, a cash flow statement covers a period of
time. It also, again like the income statement, acts as a bridge between two balance
sheets. While the income statement explains the increase (or decrease) in the net worth of
a business by showing how a profit (or loss) is generated from sales and costs, the cash
flow statement explains the change in cash resources of a business by showing how cash
has been generated and consumed under various headings.
3. Balance sheet – sometimes known as the ‘statement of financial position’. A balance
sheet is a list of the financial resources (usually called ‘assets’) and the financial
obligations (‘liabilities’) of a business at a particular moment in time. It thus provides the
‘net worth’ of a business – the total value of the assets less the total of any liabilities.
➢ The balance sheet

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The balance sheet answers various questions about a business. What is it worth? Can the
business pay its bills? How will the owners benefit from any profits earned?
Failing to understand a balance sheet may lead to failing to keep control of cash resources – in
other words, finding it difficult to pay bills as they arise, or the wages of employees. In the worst
cases, a business can become insolvent – that is, incapable of paying bills that are now due – and
in that event the business is liable to be ‘wound up’ (i.e. its legal existence brought to an end
after an application to a court) and its assets sold off in favor of its creditors.
All of this sounds fairly mundane, but the balance sheet does much more for the business
manager than simply calculating the net worth of a business. It provides information on the state
of the business’s financial health – its ability to pay its liabilities as they fall due, and its
resilience in the face of substantial economic challenges or unexpected adverse events. The
owners of a business (and those that lend it money) will use its balance sheet to calculate the risk
attached to their investment, and the likely reward that will arise given any specific level of profit
earned.
The balance sheet can be described as a ‘snapshot’ of a business’s financial affairs. Like a
snapshot, a balance sheet gives some information about what happened before the moment
captured but nothing about what happened subsequently, and that is a useful metaphor for the use
of a balance sheet in business. This is true of all financial statements; they are all backward
looking. While the income statement and cash flow cover a period of time and the balance sheet
covers a specific moment in time.

QUESTION 06
National, regional and organizational cultures are thought to influence entrepreneurship and
innovation. Different studies examined how cultural differences might affect both the level and
the type of entrepreneurial and innovative activity.
➢ Define what is meant by culture.
➢ Explain the six dimensions of Hofstede’s national culture.

MARKING GUIDE
This question is taken from block 03, section 3.2. A number of variations are possible.

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In the first part students need to explain the meaning of the concept. Cultural systems can have a
powerful effect on us as individuals, however they are not always apparent to those embedded
within a particular social group.

The term culture refers to shared systems of values, meanings and behavior. These systems are
formed over time as people interact in social groups. They are found in social groups of all kinds,
including nations, regions, organizations and occupations. As the researchers point out, while
cultural systems are the products of human action, they also persist over time so are able to shape
future actions (Kroeber and Kluckhohn, 1952). Though they can have a powerful effect on us as
individuals, cultures are not always apparent to those embedded within a particular social group.
We tend to become more conscious of cultures at the point that they collide (e.g. when we visit a
country for the first time, move to a new job, or work with members of another profession). In
these situations, we often focus on the more tangible aspects of culture, such as unfamiliar
symbols, customs or rituals. However, one of the major challenges for anyone working across
cultures is in dealing with less visible but often more significant differences (e.g. values and
views of the world).

➢ National and regional differences

In the second part, students need to elaborate the six dimensions of national culture. Hofstede’
study is the most influential analysis of national differences in culture (Hofstede et al., 2010).

It originates in fieldwork conducted in the 1970s with managers in the multinational computer
company IBM located in 67 countries. The original study identified four ‘cultural dimensions’,
or categories of values and beliefs. The findings, first published in 1980, were subsequently
extended to incorporate two further dimensions:

1. Power Distance

2. Uncertainty Avoidance

3. Individualism versus Collectivism

4. Masculinity versus Femininity

5. Long Term versus Short Term Orientation

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 6. Indulgence versus Restraint.

1. High versus low power-distance:

This dimension is concerned with how far the culture encourages superiors to exercise and
display power. In high-power distance cultures (Philippine, India): being a boss is associated
with exercising power. Inequality is accepted and working relationships are based on having
power over someone or being dependent on someone.

The existence of hidden conflict leads to an environment of mistrust where employees are seen
as potential threat to each other. Employees are afraid to disagree and prefer to work for
managers who take decisions and responsibility.

In low power-distance cultures (Austria) superiors and subordinates consider each other to be
colleagues. They believe that inequality in society should be minimized. There exist an
environment of coherence, harmony, and trust within organizations. Employees are welcomed to
express their opinions and participate in the decision making.

2. High versus low uncertainty-avoidance:

This dimension concerns the degree to which the culture encourages risk-taking. All
organizations, in all countries, face environmental changes and uncertainty and try to adapt to
them. The attitude to risk and the ability to tolerate (accept) uncertainty vary between different
cultures. In strong uncertainty-avoidance cultures (Greece, Portugal), uncertain situations are a
source of anxiety and stress.

People try to counteract (work against) this by hard work career stability, and intolerance
(pettiness-meanness) of deviancy. Employees agree that rules should not be broken and expect to
work for the same firm until retirement. In weak uncertainty-avoidance cultures (Denmark,
Singapore), uncertainty is regarded as an inherent (intrinsic) part of life. There is less need for
rules, and people are practical about keeping or changing the existing rules.

Individualism versus collectivism. This dimension concerns the degree to which the culture
encourages individual, as opposed to collectivist or group, concerns.

In individualist cultures (USA, Britain), identity is based on the individual where individual
achievement and initiative is emphasized (highlighted). Individuals are entitled (allowed) to their

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privacy and opinion. Job training which increases commitment to the company carries little
value.

3. Individualism versus collectivism

In collectivist cultures (Pakistan, Peru), there is a tight social framework where extended families
and social groups are important. The emphasis here is on belonging to the group, and on
accepting the values and decisions of the group. Direct confrontation is considered impolite,
because they disturb the harmony of the social environment

4. Masculinity vs. femininity

This dimension is based on a form of gender stereotyping (label).

In masculine cultures (Austria, Italy), performance is what counts, ambition is the driving force,
and high earnings, money, material standards and the opportunity to achieve are valued.

The manager is assertive (self-confident & aggressive), decisive, a decision maker who is
looking for facts rather than a group leader. Sex roles are clearly differentiated with men
expected to be assertive & dominating, and women to be caring and nurturing (fostering,
encouraging). This dimension is based on a form of gender stereotyping (label).

In feminine cultures (Netherlands, Sweden) there is an emphasis on the quality of life where
people and the environment are important.

The manager is less visible, intuitive rather than decisive, and accustomed (adapted and
familiarized) to seeking consensus.

A country might score higher for ‘Power Distance’, suggesting a greater willingness of managers
from that country to accept inequality and hierarchy.

Similarly, a lower score on ‘Uncertainty Avoidance’ indicated willingness to tolerate ambiguous

or unstructured situations, while the ‘Masculinity versus Femininity’ dimension measured the
extent to which the values traditionally attributed to each gender (e.g. caring was identified as
feminine) are reflected at a societal level. The findings, first published in 1980, were
subsequently extended to incorporate two further dimensions

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The findings, first published in 1980, were subsequently extended to incorporate two further
dimensions.

5. Long Term versus Short Term Orientation

Long-term orientation is when you are focused on the future. You are willing to delay short-
term material or social success or even short-term emotional gratification in order to prepare for
the future. If you have this cultural perspective, you value persistence, perseverance, saving and
being able to adapt.

Short-term orientation is when you are focused on the present or past and consider them more
important than the future. If you have a short-term orientation, you value tradition, the current
social hierarchy and fulfilling your social obligations. You care more about immediate
gratification than long-term fulfillment.

You should note that the concepts of long-term orientation and short-term orientation address the
different ways cultures view time and the importance of the past, present and the future.

Cultures demonstrating a short-term orientation will be more concerned with the past and present
and will focus their efforts and beliefs on matters related to the short-term, while cultures
demonstrating a long-term time orientation will be more concerned with the future and focus
their efforts on future-orientated goals.

6. Indulgence versus Restraint.

This sixth dimension has not yet been widely adopted within the intercultural training and
management field and this may be because it is still relatively new. There is also less data and
fewer countries than the previous dimensions. And perhaps it is also due to the ambiguities of
focusing on happiness research. Happiness is viewed very differently across cultures and it is
represented and discussed quite differently. However, there may well be some interesting
application of the sixth dimension to the international work place. For example, indulgent
cultures place more importance on freedom of speech and personal control while in restrained
cultures there is a greater sense of helplessness about personal destiny. In workplace this is
likely to have an impact on how willing employees are to voice opinions and give feedback. In

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cultures that are perceived as placing a greater importance on personal happiness and freedom,
employees may be more likely to leave an organization when they are not happy in their role.

Another interesting facet to this dimension is around attitudes to customer service. In indulgent
cultures such as in the USA the expectation is that customer service representatives visibly
demonstrate their ‘happiness’ with a smile and friendly demeanor. However, in more restrained
cultures such as Russia or eastern European countries this would be considered inappropriate an
unnatural. Indulgence versus Restraint would also seem to have an impact on generational
differences. The impact of technology on younger generations would suggest that the need for
instant gratification is more prevalent but more research is still needed.

QUESTION 07
Academics who study entrepreneurship and innovation have provided various definitions and
types of context, and they explained how each type of context can affect entrepreneurship and
innovation. Answer all the following questions:

➢ What are the main definitions of ‘context”?

➢ How does context affect entrepreneurship and innovation?

➢ Identify two ways in which context can represent a) opportunities and b) liabilities to an
entrepreneur?

MARKING GUIDE

1. definition of context

The literature provides two possible definitions of context:

Entrepreneurship and innovation occur in all parts of the world, including developed and
developing countries, urban centers and remote rural regions. They are also found in large and
small organizations, and in every industry sector. These different settings constitute the ‘context’
for entrepreneurship and innovation.

a) the natural setting of an enterprise or an entrepreneur, which helps us to understand the

origins, forms, functioning and diverse outcomes of the enterprise’s activities or an
entrepreneur’s behavior;

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b) the circumstances, conditions, situations, or environments that are external to the phenomenon
and enable or constrain it.

2. Impact of Context
Each context is shaped over time by a combination of institutional, industrial, organizational and
socio-cultural structures and practices. The resulting variety and complexity is important because
it affects the way in which entrepreneurial and innovative activities operate, the kinds of ventures
that can be developed, and the factors that influence their performance and impact.
Context can affect entrepreneurship and innovation through its direct or indirect influence on the
entrepreneur or entrepreneurial team (e.g. by shaping their values, knowledge, skills or
motivations). It can also influence the behaviors of different actors and the ways that they
interact (e.g. by setting rules and regulations, or by providing a suitable infrastructure). Existing
research has identified six dimensions of context and suggests that each dimension can be
studied in more detail to understand its influence across the different categories.
3. Contextual factors

Contextual factors can either be an opportunity or a liability for innovators and

entrepreneurs. Here are a few examples of each:

• Context as opportunity

A national or regional government has invested in a business support service that provides easy
and inexpensive access to information about customers and other stakeholders, and access to
market opportunities; local universities are also producing a good supply of scientists and
engineers to work on innovative technologies; streamlined rules and an efficient financial system
make it easier and less costly to create a new enterprise or to expand an existing one.

• Context as liability

Due to lack or resources in a particular country or region, there is no ready access to market
information, which creates delays and additional risks; for similar reasons, or as a result of
excessive bureaucracy and corruption, it may be expensive and time-consuming to register a new
enterprise or patent; political and economic uncertainty may also affect the ability to plan and
invest for the future.

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Local and global contexts are examples of the spatial and geographic dimensions of context.
However, they can also be studied separately. Studying ‘local context’ requires taking a more
detailed examination of a specific country at sub-national level, while ‘global context’ concerns
those enterprises that operate across more than one country. According to the United Nations
Conference on Trade and Development (UNCTAD), ‘Each country is unique in terms of its
economic and social realities and will seek to promote entrepreneurship and innovation using
whatever tools are available and to meet specific goals relevant to the local context. Other
international organizations provide information about the different types of local contexts that
can be found in a country and how each can affect entrepreneurship and innovation. For
example, the World Economic Forum (WEF) produces annual competitiveness reports, which
show how attractive a country is for entrepreneurship and innovation. The Global
Entrepreneurship Monitor (GEM) provides a vast, centrally coordinated, internationally executed
database that provides high-quality information, comprehensive reports and interesting case
studies to support the understanding of entrepreneurship and innovation in more than 100
countries.

QUESTION 08

Profitable trading is what most business is all about. Therefore, at regular intervals, a firm needs
to prepare a number of financial statements.

➢ Briefly define the three types of financial statements used by businesses and discuss the
income statement in more details.

MARKING GUIDE

Most limited companies and larger professional partnerships produce, at least annually, three
financial statements that summarize and present financial information in a manner that has
become fairly standardized in the finance and accounting world.

• The three financial statements generally produced are the following:

1. Balance sheet – sometimes known as the ‘statement of financial position’. A balance

sheet is a list of the financial resources (usually called ‘assets’) and the financial

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 obligations (‘liabilities’) of a business at a particular moment in time. It thus provides the
‘net worth’ of a business – the total value of the assets less the total of any liabilities.
2. Cash flow statement: Like the income statement, a cash flow statement covers a period of
time. It also, again like the income statement, acts as a bridge between two balance
sheets. While the income statement explains the increase (or decrease) in the net worth of
a business by showing how a profit (or loss) is generated from sales and costs, the cash
flow statement explains the change in cash resources of a business by showing how cash
has been generated and consumed under various headings.
3. Income statement – previously known in the UK as the ‘profit and loss account’, and
sometimes known elsewhere in the world as the ‘statement of financial performance’ or
‘statement of profit and loss’.

The financial statements represent a snapshot of a business’s financial affairs. They are all
backward looking. The income statement and cash flow cover a period of time and the balance
sheet a specific moment in time.

➢ The income statement:

The income statement shows how the business has made a profit (or a loss) over a particular
financial period – usually a financial year, but it could just as readily refer to another period of
time like a month (and this would be common for management accounts). The statement
summarizes transactions relating to:

• income – different businesses may use different words – ‘sales’, ‘gross profit’, ‘revenue’,
‘fees’, ‘earnings.”
• expenses – (often called ‘costs’ or ‘overheads’) – a summarized list of the costs incurred
in order to generate the income.

A profit is generated if gross profit is higher than expenses, and a loss if the reverse. Accountants
will identify different levels of profit, the respective importance of which depending on the
specific sector in which they work and the particular needs of the business. These might include:

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 • trading or operating profit – the profit or loss arising from the trade or operations of the
business, without any allowance for the cost of financing the business (usually an interest
charge) or the impact of any taxation.
• profit before taxation (or profit after interest) – operating profit minus any interest
charges, but before (as the title suggests) any taxation charge.
• profit after taxation – presumably self-explanatory, the profit remaining after taxation has
been deducted.

The income statement is only a summary of business performance over a period. On its own it is
unlikely to provide all the answers required – every answer to a question is likely to provoke a
demand for further, more detailed analysis before specific business responses can be identified.
And, sometimes, a change that appears to be for the worse in the short term (for example, a
significant investment in marketing expenditure) may in fact have been purposefully undertaken
for good business reasons that are intended to bring benefit in the long term.

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