Entrepreneurship in Developing Countries

III.3  What Does Entrepreneurship Look Like in Developing Countries? 

 

It is important to clarify what is meant by entrepreneurship in developing countries.  

A number of terms are used interchangeably to describe entrepreneurial activities.  For 

example, entrepreneurship and small and medium enterprises (SMEs) have been used 

synonymously. Discussions of entrepreneurial activities in developing countries have also 

included the informal sector and petty capitalism ([68],). Many African manufacturing 

firms, for example, had fewer than 150 employees ([69], p.114) and therefore would fall 

into the SME sector.  Fafchamps writes that “market intermediation in Africa is 

characterized by a plethora of small traders, seldom exceeding a handful of employees and 

family helpers.” ([69])  The World Bank, in its efforts to target entrepreneurship, has 

focused on both the small business and the informal sectors.  In 2003, the World Bank 

released a new database on the SME sector and the accompanying study found that when 

both the SME and the informal sectors are considered, “the joint contribution…to GDP 

remains approximately constant across income groups at around 65-70 percent.  As income 

increases however, there is a marked shift from the informal to the SME sector.” ([70], 

p.11) This finding indicated that the informal sector in developing countries is an 

important source of economic activity.  Another concept is petty capitalists, or small 

businesses which employ relatively few employees and rely heavily on their owner’s and 

the owner’s family’s labor, include a wide spectrum of entrepreneurs – from the numerous 

export enterprises of Hong Kong (See also [71]), the maquila workshops in Mexico which 

produce garments for export, the furniture manufacturers in Italy, to Taiwan’s integrated 

 

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circuit producers ([68]).  In developed economies, however, scholars have argued for a 

distinct concept of entrepreneurship. Carland et al, for example, writing on the American 

economy, make a strong distinction between the SME sector and entrepreneurship ([72]).  

They find that,  

Although there is considerable overlap between small business and 

entrepreneurship, the concepts are not the same.  Entrepreneurial firms 

may begin at any size level, but key on growth every time…..The 

entrepreneur is characterized by preference for creating activity, 

manifested by some innovative combinations of resources for profit. ([72], 

p.357) 

 

However, while SMEs and entrepreneurship have different meanings, both are important in 

an economy ([73]).  Indeed, the small business sector may serve as a “vehicle both for 

Schumpetarian entrepreneurs introducing new products….and for people who simply run 

and own a business for a living.” ([73], p.140) Similar distinctions have been made 

between survival or necessity entrepreneurs and opportunity entrepreneurs. 

Do these distinctions matter for developing countries? As the major share of firms 

in developing countries are small, in terms of the number of employees and assets; and 

many operating in the informal economy using family labor, this review’s distinction of 

entrepreneurship cannot, therefore, be based on size.  Any distinctions drawn in this review 

between entrepreneurship, the small business sector, petty capitalism and the informal 

sector will be based on the Schumpeterian concept of innovation– new products, new 

markets and new processes.  However, as Schumpeter pointed out, that “the “new thing” 

need not be spectacular or of historical importance….To see the phenomenon even in the 

 

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humblest levels of the business world is quite essential though it may be difficult to find 

the humble entrepreneurs historically.”  ([61], p.151)  Therefore, this study adopts the 

widest possible definition of entrepreneurship.