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Relationship between Individualist–Collectivist Culture and Entrepreneurial

Activity: Evidence from Global Entrepreneurship Monitor Data

Article · January 2011

DOI: 10.1007/s11187-009-9230-6

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Small Bus Econ (2011) 37:23–37
DOI 10.1007/s11187-009-9230-6
Relationship between individualist–collectivist culture
and entrepreneurial activity: evidence from Global
Entrepreneurship Monitor data
Marı́a-José Pinillos Æ Luisa Reyes
Accepted: 15 July 2009 / Published online: 26 August 2009
 Springer Science+Business Media, LLC. 2009
Abstract This paper examines how one dimension
of national culture (an individualist–collectivist ori-
entation) is related to Total Entrepreneurial Activity,
depending on the level of economic development,
measured by GDP per capita. Researchers have
traditionally associated individualism with high rates
of firm creation, arguing that an orientation towards
achievement and the pursuit of personal objectives
(dominant aspects in individualist cultures) are deter-
minants of entrepreneurial activity. The current anal-
ysis shows that a country’s culture correlates to
entrepreneurship, but cannot uphold the idea that
higher levels of individualism mean higher rates of
entrepreneurship. Using data from the Global Entre-
preneurship Monitor on 52 countries, the results show
that a country’s entrepreneurship rate is negatively
related to individualism when development is medium
or low, and positively related to individualism when
the level of development is high. Thus, individualism
is not related to entrepreneurship in the same way in
countries with differing levels of development.
Keywords Culture  Individualism–collectivism 
Entrepreneurship  Global Entrepreneurship Monitor
JEL Classifications L26  M13  O57
M.-J. Pinillos (&)  L. Reyes
Rey Juan Carlos University, Madrid, Spain
e-mail: mariajose.pinillos@urjc.es
1 Introduction
Entrepreneurship is a complex phenomenon that
involves a great variety of contexts and factors.
Within the analysis of entrepreneurship, the study of
new firm creation has had an important place,
particularly due to its importance in economic
development, renewal and employment generation
(Tödtling and Wanzenböck 2003).
New business start-up activity can be found in all
countries, but researchers who study entrepreneurship
across countries find that significant differences exist
in the levels of entrepreneurial activity, and also that
these differences remain stable over time (Uhlaner
and Thurik 2007; Van Stel et al. 2005).
In the past, most researchers trying to explain the
different levels of entrepreneurial activity have
carried out comparative analyses of the economic
conditions in different countries (Blau 1987; Blanch-
flower and Oswald 1994; Blanchflower 2000; Evans
and Leighton 1989; Meager 1992; Acs et al. 1994;
Audretsch et al. 2002; Sternberg and Wennekers
2005). Such studies have provided empirical evi-
dence on the existence of a U-form relationship
between the level of economic development and the
level of national entrepreneurial activity (Carree et al.
2002; Thurik and Wennekers 2004; Sternberg and
Wennekers 2005; Wennekers et al. 2005).
Using data from the Global Entrepreneurship
Monitor (GEM), Wennekers et al. (2005) have
observed this U-form relationship between nascent
123
24
entrepreneurship and the level of income per capita.
The implication of such a U-shape is that, as
economies develop, the rate of new business start-
ups or that of nascent entrepreneurship declines, but
picks up again in highly developed economies.
However, bearing in mind that the level of
entrepreneurial activity is related to that of economic
development, as described above, Van Stel et al.
(2005) note that countries such as Belgium, France,
Japan, Switzerland, Australia, Canada, and the US all
have the same level of development, but that the first
four have a low level of entrepreneurial activity,
while the last three have a high level, according to
GEM Executive Reports, a difference that is shown to
be persistent. It can thus be concluded that reasons
may exist, other than solely economic ones, to
explain why countries have similar levels of income
but a different ratio of entrepreneurial activity, and
these other reasons may be rooted in cultural
differences according to Hofstede et al. (2004).
Empirical evidence exists (Noorderhaven et al.
2004; Wennekers et al. 2007) to support this notion,
and even to suggest that culture, more than economic
variables, plays a fundamental role in explaining the
differences in entrepreneurial activity in different
countries, especially in terms of persistence, as
cultural aspects are possibly of an even more per-
manent nature than economic conditions (Hofstede
2001; Wennekers et al. 2007).
Culture, as the underlying value system peculiar to
a specific group or society, shapes the development of
certain personality traits and motivates individuals in
a society to engage in behaviour that may not be
evident in other societies.
The development of research based on culture
began by empirically identifying different types of
culture. In the more general field of research of
culture and management (Sondergaard 1994), and
specifically in culture and entrepreneurship (Hayton
et al. 2002), the typology of culture defined by
Hofstede (1980, 2001) has undoubtedly been the most
widely used.
Hofstede’s (1980, 1991, 2001) extensive study of
culture provides a clear articulation of differences
across countries in values, beliefs, and work roles. In
his influential first study, Hofstede (1980) finds
cultural differences across countries along four
dimensions: power distance, uncertainty avoidance,
individualism–collectivism (I–C), and masculinity–
123
M.-J. Pinillos, L. Reyes
femininity. Later, he adds a fifth dimension (Hofstede
1991): long- versus short-term orientation. His cul-
tural dimensions are useful for identifying key
aspects of culture related to the potential for entre-
preneurial behaviour (Thomas and Mueller 2000;
Kirkman et al. 2006). Out of the five dimensions
describing culture, the I–C contrast constitutes the
‘‘profound structure’’ of cultural differences (Triandis
and Suh 2002). I–C expresses the cultural tendency to
place more value on the individual or the group. The
present study focuses on the cultural dimension I–C
and looks at its relationship with entrepreneurial
activity, as well as the level of development.
Different theories exist as to why a particular
country can have a greater ‘‘entrepreneurial culture’’
than another. One of these explanations (Davidsson
1995; Davidson and Wiklund 1997) implies that in
countries where a greater proportion of the population
has entrepreneurial values, there will also be a greater
prevalence of entrepreneurial behaviour. It can there-
fore be assumed that it is precisely people with greater
entrepreneurial spirit who are more likely to create new
firms. Individualism is one of the factors related to the
profile of the entrepreneur. Individualism is associated
with the motivation to achieve and the pursuit of
personal goals. Some researchers find empirical evi-
dence supporting the idea that individualism favours
new firm creation (McGrath et al. 1992a; Shane 1992,
1993; Mueller and Thomas 2001; Wennekers et al.
2002), although other authors have also offered
empirical evidence to suggest that it is, in fact, a lesser
degree of individualism (in other words, collectivism)
that is positively related to entrepreneurial activity
(Hunt and Levie 2003; Baum et al. 1993).
These varying results have led us to believe that
the I–C relationship and entrepreneurial activity
depend on the different levels of development of
the countries under scrutiny and that the individualist
culture will have a greater relationship with entre-
preneurial activity when we refer to countries with a
high level of income. Conversely, it is the collectivist
culture that will have the greatest relationship to
entrepreneurial activity when we consider countries
with a medium or low level of income. This belief
has been backed up via the empirical evidence
obtained in this study, whose rationale is linked to
different motivations that drive entrepreneurs accord-
ing to their respective cultures, as we will go on to
demonstrate.
Relationship between individualism–collectivism and entrepreneurship
Understanding the relationship between cultural
differences and the level of entrepreneurial activity is
crucial for establishing policy measures designed to
encourage entrepreneurial activity in each country.
Public institutions clearly play a fundamental role
and, through their policies, can strengthen the devel-
opment of productive or unproductive activities
(Baumol 1996). However, in order to drive entrepre-
neurial activity forward, it is important to know
which factors are related to entrepreneurial activity,
what is the strength of the relationship and which of
these factors can be influenced by policy measures.
Prior research finds that the individualist–collec-
tivist dimension of culture is a key aspect in entrepre-
neurial behaviour (e.g., Triandis 1995; Earley and
Gibson 1998; Oyserman et al. 2002), and research has
also stressed the importance of the relationship
between the level of economic development and
entrepreneurial activity. Recently, authors have tried
to examine the relationships to be found among
individualism–collectivism, economic development
and entrepreneurial activity (Hunt and Levie 2003;
McGrath et al. 1992b). However, the studies that
analyse this threefold relationship are not explicitly
concerned with the questions of (1) whether individ-
ualism–collectivism is related independently to entre-
preneurial activity or (2) whether economic
development moderates the relationship between
individualism–collectivism and entrepreneurial activ-
ity. The current study aims to examine these questions.
Focusing the analysis on individualism–collectiv-
ism, which is the most representative cultural
dimension (Triandis 1988; Franke et al. 1991; Van-
dello and Cohen 1999; Schimmack et al. 2005), and
on the basis of the findings on individualism–
collectivism (Triandis and Suh 2002), this study
empirically investigates the relationship between
individualism and entrepreneurial activity at a
national level.
We use material provided by the GEM project.
GEM provides diverse information on participating
countries, including the Total Entrepreneurial Activity
(TEA) rate. TEA measures the relative amount of
nascent entrepreneurs and business owners of
young firms in a country. This variable is (consis-
tently) measured across a variety of countries and
appears to be a useful index for measuring rates of
‘‘entrepreneurship’’.
25
An important aspect in the current analysis is to
consider whether individualism plays a similar stim-
ulating role in highly developed economies (rela-
tively rich countries) and in less developed
economies (relatively poor countries, including both
transformation economies and developing countries).
Our contrast is based on the statistical analysis of
TEA during the period 1999–2007 for a sample of 52
countries, and the level of economic development is
measured by GDP per capita (GDPPC). We also
analysed the I–C for two groups of countries:
developed economies and developing ones.
The rest of this paper is organised as follows.
Section 2 outlines the theoretical foundations justi-
fying the research, and Sect. 3 presents the research
hypotheses. Section 4 describes the research meth-
odology, while Sect. 5 reports the results. The study
ends with the conclusions and some research
limitations.
2 National culture, individualism–collectivism
and entrepreneurship
Culture has been defined in many ways. Building on
the work of Kluckhohn (1951) and Kroeber and
Parsons (1958), Hofstede sees culture as patterned
ways of thinking and feeling that constitute the
‘‘mental programming’’, distinguishing members
from one group to another. Such mental program-
ming consists of patterns of ideas and especially their
attached values, which are conserved and passed
down from generation to generation. Culture is
deeply rooted, operates unconsciously, and is infused
with the values of political institutions and technical
systems, all of which simultaneously reinforce values
and beliefs. Typical cultural values are formed in the
early years of a person’s life and tend to be
‘‘programmed’’ in the individual, resulting in behav-
iour patterns that are consistent with the cultural
environment and remain stable over time (Hofstede
1980; Mueller and Thomas 2001).
Thus, culture as the underlying system of values
peculiar to a specific group or society shapes the
development of certain personality traits and moti-
vates individuals in a society to engage in behaviours
that may not be as prevalent in other societies
(Mueller and Thomas 2001).
123
26
2.1 The individualist–collectivist cultural
dimension
Hofstede (2001) puts individualism and collectivism
at opposite ends of a continuum, which the majority
of researchers accept (Morris et al. 1994). The
position of each country on that continuum reflects
its individualist or collectivist orientation. Hofstede
defines this dimension as follows: ‘‘Individualism
stands for a society in which the ties between
individuals are loose: Everyone is expected to look
after him/herself and her/his immediate family only.
Collectivism stands for a society in which people
from birth onwards are integrated into strong, cohe-
sive in-groups that, throughout people’s lifetime,
continue to protect them in exchange for unquestion-
ing loyalty’’ (Hofstede 2001, p. 225).
Individualism stresses the individual, self-suffi-
ciency, and self-control. People in individualist
cultures feel proud of their own accomplishments,
and are motivated by their own interests and the
achievement of personal objectives. Thus, Hofstede
(1980, p. 221) defines individualism as emotional
independence from ‘‘groups, organizations, or other
collectivities’’.
Collectivism implies subordinating personal inter-
ests to the interests of the group and is based on
cooperation and harmony, as well as a concern for the
well-being of the group. In collectivist cultures,
people feel that they are an indispensable part of the
group and are unconcerned both about their own
benefit and about the possibility that others may
exploit their efforts (Hui and Triandis 1986).
The differences between individualism and col-
lectivism are obvious at many levels: the family,
personality and behaviour, language and group iden-
tity, and in school education (Hofstede 2001). For
example, Hofstede (2001, p. 226) says ‘‘[m]embers of
the we-group are distinct from the other people in
society who belong to they-groups or out-groups, and
there are many such people and such out-groups. The
in-group is the major source of one’s identity and the
only secure protection one has against the hardships
of life. Therefore, one owes lifelong loyalty to one’s
in-group, and breaking this loyalty is one of the worst
things a person can do’’. Loyalty to the group is an
essential element in collectivist cultures, where
resources are shared. Hofstede (2001) also notes that
in collectivist cultures, entrepreneurs preferentially
123
M.-J. Pinillos, L. Reyes
hire their own family members, and then relatives of
their employees. Individualist societies, in contrast,
generally consider family relationships to be unde-
sirable in the workplace since they could lead to
nepotism or generate conflicts of interest.
Tiessen (1997) summarises the key characteristics
of individualism and collectivism, and stresses that
the objectives people pursue are personal and short-
term in individualist cultures and group-oriented and
long-term in collectivist cultures. We should note that
in some countries, individualism is seen as a blessing
and a source of well-being, but in others is regarded
as unacceptable1 (Peterson 1988). Briefly, in the
individualist philosophy, ‘‘I’’ is more important than
‘‘we’’, and success is a personal achievement. In the
collectivist philosophy, in contrast, ‘‘we’’ is more
important than ‘‘I’’, and individuals are willing to
make sacrifices in favour of the position, performance
and satisfaction of the group. Thus, collectivist
societies tend to make a greater ‘‘in-group versus
out-group’’ distinction than do individualist cultures
(Hofstede 1980).
2.2 Individualism–collectivism and its
relationship with entrepreneurial activity
It has been said that cultures with a deeply rooted
individualism and with low uncertainty avoidance are
associated with the development of institutional
arrangements, and possibly with psychological traits
and/or cognitive processes, which have been found to
be associated with entrepreneurship.
Indeed, empirical evidence suggests a positive
relationship between individualism and entrepreneur-
ial activity. Thomas and Mueller (2000) see the logic
behind this relationship as being related to the fact the
majority of research into entrepreneurship has been
carried out in the USA and consequently, ‘‘the US
culture of individualism and achievement has dom-
inated the world view of entrepreneurship’’ (Thomas
and Mueller 2000, p. 290). However, ‘‘the cult of
individualism is foreign to, and often unacceptable in,
1
An example is the Chinese culture, where individualism is a
manifestation of selfishness, so anti-individualism is strongly
rooted in the culture. But collectivism does not mean denying
the well-being or interests of the individual. Instead, safe-
guarding the welfare of the group is seen as the best guarantee
for the individual (Hofstede 2001; Hui and Triandis 1986).
Relationship between individualism–collectivism and entrepreneurship
many countries round the world. Gradually, it is
becoming clear that each country/culture must
develop its own brand of entrepreneurship and raise
its own champions to promote entrepreneurial behav-
iour that fits the prevailing societal mores’’ (Peterson
1988, p. 1).
Bearing in mind the argument outlined above, the
fact that a number of countries with a clear collec-
tivist orientation currently heads the TEA ranking is
unsurprising (Bosma and Harding 2007), in stark
contrast to the idea that individualism is more closely
associated with entrepreneurial activity. Specifically,
out of the 42 countries in GEM 2006, Peru and
Colombia have the strongest collectivist orientation,
with I–C indexes of 16 and 13, respectively,2 and
these two countries are first and second in the
entrepreneurship rankings in 2006, with TEAs of 40.2
and 22.5%, respectively.3 Indeed, a detailed exami-
nation of the data from the GEM reports over the
years offers two key observations with regard to the
analysis of entrepreneurship. Firstly, evidence sug-
gests that levels of entrepreneurship in GEM coun-
tries are reasonably stable year after year; secondly,
the relative positions of countries in the TEA ranking
also remain stable. In other words, differences across
countries or regions tend to persist over time (Minniti
et al. 2006; Acs et al. 2005; Reynolds et al. 2002).
For this reason some researchers (Van Stel et al.
2005) regard TEA as a structural characteristic of
each country’s economy.
From an entrepreneurship standpoint, social psy-
chology has speculated as to the existence of a human
hierarchy of motivations that ranges from ‘‘basic’’
needs (related to subsistence and physical needs) to
the so-called ‘‘higher order needs’’ (which include the
need for achievement, the need for affiliation, the
need for autonomy and the need for dominance)
(Maslow 1954). The theory of the hierarchy of needs
maintains that when ‘‘basic’’ motivations have been
satisfied, attention will then turn to higher order
needs, a greater level of prosperity will lead to the
2
In order to interpret the size of these scores, recall that the
I–C index (Hofstede 1980, 2001) can take values between 0
and 100, with values close to 100 meaning individualist
cultures. The country with the highest score—i.e., the most
individualist culture—is the US, with a score of 91.
3
The mean TEA score in 2006 is 9.4%.
27
pre-eminence of higher order needs (Uhlaner and
Thurik 2007).
Motivations are, according to Locke and Latham
(1990), those factors that cause tension for the
individual, endow them with vigour, direct and
sustain their behaviour and make them act in order
to try and satisfy their needs. Erez and Earley (1993)
underline the impact of culture in motivation when
they indicate that culture provides a cognitive outline
that endows meaning and values to motivational
variables to adopted decisions and behavioural stan-
dards. Cultural value orientations establish criteria for
determining which objectives are desirable and which
ones are not.
Baum et al. (1993) make a detailed examination of
the needs and motivations of entrepreneurs from
differing cultures. Their results provide empirical
support for the hypothesis of Erez and Earley (1993),
and they observe that the motivations of entrepre-
neurs are not always the same, but are different in
individualist and collectivist cultures. They point out
that national cultural differences may generate dif-
ferent motivations among individuals and find that
entrepreneurs are motivated by the need for auton-
omy and achievement in both individualist cultures
(e.g., the US) and collectivist cultures (e.g., Israel).
But the entrepreneurs in Israel’s collectivist culture
have a strong need for affiliation, which they can
satisfy by creating firms. These authors argue (Baum
et al. 1993, p. 510) that ‘‘[o]ne explanation for Israeli
entrepreneurs’ higher need for affiliation than their
American counterparts is that in a collectivist,
egalitarian, and informal society like Israel’s, success
in the entrepreneurial role depends to a great extent
on social networks and personal contacts with key
individuals (friends and family) who facilitate com-
pany start-ups (e.g., through personal loans). Israelis
with high needs for affiliation are more likely to
develop the necessary support network critical to the
start-up. In contrast, the US is a less intimate society,
more dependent on formal social structures. ‘Work-
ing the system’ by following institutional rules and
procedures may be the key to garnering support for
the start-up (e.g., through financial institutions and
venture capitalists), thus attenuating the need for
affiliation’’. In sum, in collectivist countries, family
and/or clan loyalties may provide reliable (although
informal) investment guarantees or the opportunity to
request investment with greater force. This increases
123
28
the prevalence of informal investment as opposed to
individualist countries where such royalties diminish,
or have been replaced by the rule of law.
Along the same lines, Trulsson’s (1997) study of
entrepreneurs in the region of Lagos in Tanzania
offers an example that sheds light on the need for
affiliation in business behaviour. The author asks why
African entrepreneurs seem to behave irrationally to
Western observers. An extreme case of what could be
considered ‘‘irrational economic behaviour’’ is one in
which entrepreneurs acquire technology to reduce the
labour force but at the same time needlessly employ a
large number of relatives. One of Trulsson’s most
important findings is that a fundamental aspect of the
labour market in this environment is to employ or
give work to members of the extended family, which
coincides with Hofstede’s observation described
above. Consequently, entrepreneurs spend a consid-
erable part of their time, energy and financial
resources attempting to balance business and family
obligations. The profit motive is subjected to many
other priorities here, which explains why the per
capita income level of these countries is lower.
The ideas above indicate that when culture is
collectivist, one of the results is that people identify
themselves with the group they belong to, and their
assessment differs on who should be hired, how
decisions should be made or how work should be
assigned, though in a way that does not diminish the
tendency to act entrepreneurially.
In conclusion, cultural differences lead to different
behaviour patterns, which are a consequence of the
fact that the motivations that drive individuals’
actions differ according to their culture (Baum et al.
1993) and their environment (Stewart and Roth
2007).
3 Level of economic development, individualism–
collectivism and entrepreneurship: working
hypotheses
As we mentioned in the introduction, there is
empirical evidence to suggest that entrepreneurial
activity is connected to the level of economic
development. This relationship has been explained
bearing in mind the different predominant activities
in the social group, which historically evolve from
the primary activity of agriculture, onto
123
M.-J. Pinillos, L. Reyes
industrialisation and a knowledge-based society
(Wennekers et al. 2005).
From this perspective, societies go through three
successive stages where economic activity linked to
agriculture dominates, and is then replaced by industry
and lastly by services and the knowledge-based
society.
In agricultural societies, the level of development
is low, production units are numerous and are
organised around family groups, and the culture is
collectivist. In industrial societies, the level of devel-
opment increases and the form of production requires
large-sized firms, with strong capital and economies
of scale, which determine the fact that firms tend
towards concentration and therefore numbers are
reduced, as well as the fact that family ties cease to
be as important as they were at the previous stage, as
the countryside population moves into the industrial
centres and the individualist spirit grows. However,
this does not normally become apparent via the
creation of new firms, but by satisfying the entrepre-
neurial spirit within the large firm through innovation
of new procedures or new products, as stated by Baum
et al. (1993). In the most advanced stage of economic
development, where services and a knowledge econ-
omy prevail, the possibility of the appearance of the
entrepreneurial spirit in the form of new firm creation
arises once more, as the demands on capital and the
need for economies of scale are no longer as essential
to their viability. The motivation for achievement and
autonomy that feeds the entrepreneurial spirit moves
away from large industrial corporations and can be
satisfied through the creation of their own firm.
That sequence or succession has been described by
Bond and Smith (1996) through ecological factors,
indicating, for example, that in agriculture, collective
action is often highly valued, and by Inglehart and
Baker (2000) who state that individualism is associ-
ated with activity in services.
The evolution referred to above is undoubtedly not
as simple as we have thus far made out. Inglehart and
Welzel (2005) claim that economic development
tends to bring about foreseeable changes in people’s
vision of the world; although traditional cultures—
derived, for example, from a society that has been
historically moulded by Protestantism or by Confu-
cianism—still leave an indelible stamp on a society’s
vision of the world. History is important, and
prevalent value orientations in a society reflect the
Relationship between individualism–collectivism and entrepreneurship 29

interaction between economic forces and the influ- culture. In relatively poor countries a high level of
ence of tradition. collectivism will favour entrepreneurship, since indi-
All of this leads us to highlight the fact that the viduals will be more motivated to create firms to
relationship between culture and entrepreneurial improve their own situation and at the same time
activity must be analysed within the framework of favour the group. In relatively rich countries, in
the level of development. Wennekers et al. (2005) contrast, a high level of individualism will favour
conclude that in the relationship between the level of entrepreneurship. We can therefore propose the
development and entrepreneurial activity there may following the hypotheses:
exist ‘‘interaction effects in the sense that the level of
Hypothesis 1: The country’s economic develop-
economic development influences the effects of
ment level (GDPPC) moderates the relationship
various other determinants’’ (Wennekers et al. 2005,
between the individualist–collectivist (I–C) culture
p. 307). Later on, Wennekers et al. (2007) found
and the entrepreneurial activity rate (TEA).
empirical evidence for the statement that the rela-
tionship between uncertainty avoidance and the level Hypothesis 2: The Total Entrepreneurial Activity
of business ownership depends upon the level of (TEA) rate is negatively associated with individual-
economic development (measured by GDPPC). ism (I–C) in relatively poor countries.
In brief, taking into account all these previous
Hypothesis 3: The Total Entrepreneurial Activity
points, we believe that the relationship between I–C
(TEA) rate is positively associated with individualism
and entrepreneurial activity is moderated by the level
(I–C) in relatively rich countries.
of economic development. In other words, the level
of development and I–C interact on the level of
entrepreneurial activity.
4 Methodology
In line with what we have just described, it might
be expected that, in developing countries with
This section presents the data and the model used in
collectivist cultures, entrepreneurs with a strong need
the analysis.
for achievement and especially affiliation are driven
to create their own business. This is favoured by the
4.1 Sample
existence of an environment of informal relationships
that provides support and at the same time helps
The data used in this study come from three sources
satisfy the need for affiliation. The situation is clearly
of information: the countries’ TEA scores come from
different in individualist cultures, in which the need
the GEM project; the countries’ development levels
for achievement and the pursuit of one’s own benefit
and GDPPC come from the World Bank; the
seem to drive entrepreneurial activity.
countries’ individualism levels come from Hofstede
The possibility that the level of development may
(1980, 2001).
act as a moderating variable has, therefore, important
The GEM project began in 1999 with 10 partic-
implications for understanding the entrepreneurial
ipating countries, and the number of participants has
behaviour of countries,4 since this behaviour will
generally increased year by year to reach 42 countries
clearly be influenced by the country’s development
in 2006 and 2007. Of the 56 countries that have
level. Consequently, the current analysis attempts to
participated in at least one of the GEM editions,
determine whether a country’s individualist–collec-
information about their I–C index is available for 535
tivist culture will affect its entrepreneurship differ-
countries. A country’s TEA varies little from year to
ently depending on its level of development.
year, to the extent that some regard the TEA as a
The majority of people in a country are not aware
structural characteristic of the economy (as previ-
of how their culture influences their values, attitudes,
ously mentioned), and since it is recommendable to
ideas and norms, and most countries have a dominant

4 5
For a detailed analysis of the importance and implications of Individualism–collectivism data are not yet available for the
identifying moderating variables, see Baron and Kenny (1986), Dominican Republic, Latvia, or Uganda, so these countries
and Sharma et al. (1981). cannot be included in the analysis.

123
30
test the hypotheses using the largest possible number
of countries, this study considers a sample of 526
countries: all those that have participated in at least
one GEM edition and for which information about
their I–C culture according to Hofstede data and their
GDPPC is available. We measure the entrepreneurial
activity by the mean TEA of each of the 52 countries.
Appendix I reports the countries included in the
analysis, as well as the group to which each country
belongs given its development level and its corre-
sponding mean TEA. According to the World Bank
classification, 25 of these countries have a medium or
low development level (relatively poor countries) and
27 have a high development level (relatively rich
countries).
4.2 Variables
Total national entrepreneurial activity: The GEM
project provides an indicator of the country’s entre-
preneurial activity in the shape of the TEA rate. The
TEA is calculated in a survey of the adult population
of each country, which, among many other things,
registers the percentage of entrepreneurial initiatives
carried out in a 1-year period. The TEA measures the
percentage of the adult population of a country (18–
64 years old) that is either actively involved in
starting a new venture or is the owner/manager of a
business that is less than 42 months old (Reynolds
et al. 2002).
The TEA rate is measured in three different ways.
First, the variable TEA measures the mean TEA of
each of the 52 countries that have participated in at
least one of the GEM editions from 1999 to 2007 and
for which information on their level of individualism
and GDPPC is available. Second, the GEM project
distinguishes between the motives behind entrepre-
neurial behaviour. People start their own business for
two main reasons: because they have perceived and
wished to exploit a business opportunity (opportunity
entrepreneurs), or because they have no other work
options or their options are unsatisfactory (necessity
entrepreneurs). The variable TEA_Opp measures the
TEA when the main reason for starting the business is
6 other words, in the slope. The entrepreneurial activity
We exclude Taiwan from our analysis because comparable
GDP per capita data are not available for the country in the
World Bank’s database.
123
M.-J. Pinillos, L. Reyes
the discovering of an opportunity, while TEA_Nec
measures the same one but when the main reason is
necessity. Both TEA_Opp and TEA_Nec are mean
values.
Individualist–collectivist national culture: The I–C
index takes values between 0 and 100. Higher values
indicate countries with individualist cultures, while
lower values indicate more collectivist cultures.
Hofstede (2001, p. 214) gives the highest values of
this index for the US (91), Australia (90) and the UK
(89), and the lowest values for Guatemala (6),
Ecuador (8) and Panama (11). The variable INDCOL
measures Hofstede’s (2001) assessment of the I–C
orientation of each of the 52 countries.
Gross domestic product per capita at the country
level: The variable GDPPC measures the mean
GDPPC, expressed in constant 2,000 US dollars, of
each of the 52 countries for the period 1999–2007.
These data come from the World Development
Indicators database of the World Bank.
4.3 Model
In order to contrast our hypotheses, we have taken the
model used by Van Stel et al. (2005), introducing our
own variables.
As mentioned above, we assume that the relation-
ship between individualism–collectivism and a coun-
try’s economic development depends on the
particular stage of its economic development. There
are two ways in which this hypothesis can be tested.
The first approach is to include a term of interaction
between I–C and per capita income. The estimated
model is as follows:
TEA ¼ a þ bINDCOL þ cGDPPC
þ dINDCOL GDPPC þ e ð1Þ
Thus, the hypothesis is that the value of d is positive.
Alternatively, the effect of I–C for different groups
of countries (rich versus poor) can be distinguished,
for which a dummy variable (Allison 1977) called
DEVELOP_LEVEL is introduced. This variable
equals 0 for relatively poor countries and 1 for
relatively rich countries.
This study begins with the assumption that there
are differences in the form of the relationship, in
level differs according to the country’s level of
development. It is collectivism that favours TEA in
Relationship between individualism–collectivism and entrepreneurship 31

Table 1 Correlationship matrix

Mean 1 2 3 4 5 6

1 TEA 10.27 1
2 TEA_Opp 7.29 0.959* 1
3 TEA_Nec 2.75 0.887* 0.754* 1
4 INDCOL 47.25 -0.533* -0.424* -0.582* 1
5 GDPPC 14,104.88 -0.550* -0.438* -0.614* 0.624* 1
6 DEVELOP_LEVEL 0.52 -0.587* -0.468* -0.656* 0.602* 0.854* 1
* Correlation is significant at the 0.01 level

developing countries (Hypothesis 2) but individual- 5 Results

ism that favours TEA in developed countries
(Hypothesis 3).
The estimated model is as follows:
TEA ¼ a þ bINDCOL þ cDEVELOP LEVEL
þ dINDCOL DEVELOP LEVEL þ e
For relatively poor countries, the variable DEVEL-
OP_LEVEL equals 0. If the second hypothesis is
correct, then b must be less than 0, so Eq. 27 can be
written as follows:
TEA poor ¼ a  bINDCOL þ e
For relatively rich countries, the variable DEVEL-
OP_LEVEL equals 1, and Eq. 2 can be written as
follows:
TEA rich ¼ a  bINDCOL þ c 1
þ dINDCOL 1 þ e
¼ ða þ cÞ þ ðd  bÞINDCOL þ e
According to Hypothesis 3, (d - b) is greater than 0.
Table 1 reports the correlationships between the
variables used.
7
It should be pointed out that the model can be specified in
different ways (Allison 1977; Southwood 1978). One way
involves carrying out a single regression, with TEA as the
dependent variable and two independent variables in the
equation: one with the INDCOL of the relatively rich countries
and the other with the INDCOL of the relatively poor
countries. An alternative way of specifying the model is to
carry out two regressions, one for the relatively rich countries
and the other for the relatively poor ones. Following Allison
(1977), we opted to carry out a single regression using dummy
variables, because dummy variables permit subsets of the data
to have regression functions with different intercepts and
different slopes. In this way, the results for the various datasets
can be compared in a stringent way, and statistical inference
becomes more efficient (Ghauri et al. 1995).
Table 2 reports the results of the regression. Model 1
includes INDCOL and GDPPC; Model 2 (Eq. 1)
includes INDCOL, GDPPC, and the interaction term
between INDCOL and GDPPC; Model 3 (Eq. 2)
ð2Þ
includes INDCOL, the dummy variable DEVELO-
P_LEVEL, and the interaction term between DEVEL-
OP_LEVEL and INDCOL. Models 4 and 5 include the
same variables as Model 3 (i.e., INDCOL, the dummy
variable DEVELOP_LEVEL, and the interaction term
between DEVELOP_LEVEL and INDCOL), and the
ð3Þ
dependent variables are TEA_Opp and TEA_Nec,
respectively.
Comparing Model 2 to Model 1, we find that the
addition of the interaction term increases the adjusted
R2 considerably, from 0.33 to 0.56 (Hair et al. 1998).
The interaction term has the expected positive effect
and is significant at 1%.8 Hence, the impact of
ð4Þ individualism increases with per-capita income. The
impact can be written as -0.096 ? 1.44 9 10-5
8
The correlation between INDCOL and the interaction term
INDCOL*GDPPC was 0.81, which indicates the existence of
multicollinearity problems. Thus we transformed the variables
following Venkatraman’s (1989) procedure. This resulted in a fall
in the correlation to only 0.16, suggesting no problems of
multicollinearity. Venkatraman (1989, pp. 426–427) points out
that ‘‘[a]lthough statistical estimation problems are posed by
multicollinearity, it is not problematic for establishing the
existence of moderation effects. For interval-level measurements,
a simple transformation of the scale of origin reduces the level of
correlation between the cross-product term, X  Z, and the
original variables (X, Z).[…]any equation [X1,X2,X  3 = X1  X2]
can be transformed into one X10 ; X20 ; X30 ¼ X10  X20 where X10 ¼
½X1 þ c and X20 ¼ ½X2 þ k, that is, the two equations express the
same surface in the three dimensions [Y,X1,X2], except for the
shift in the axes of X’’. We transformed the variables as follows
(i is country index): INDCOL0i = INDCOLi - mean INDCOL,
and GDPPC0i = GDPPCi - mean GDPPC.

123
32 M.-J. Pinillos, L. Reyes

Table 2 Estimation results of Eqs. 1 and 2 (52 observations)

Dependent variable TEA TEA_Opp TEA_Nec
Model 1 Model 2 Model 3 Model 4 Model 5

Constant 17.497* 16.072* 24.175* 17.262* 7.901*

INDCOL -0.09* -0.096* -0.295* -0.224* -0.094*
GDPPC -2.11 9 10-4* -2.65 9 10-4*
INDCOL*GDPPC 1.44 9 10-5*
DEVELOP_LEVEL -20.969* -15.966* -6.930*
DEVELOP_LEVEL*INDCOL 0.346* 0.286* 0.096*
R 0.60 0.76 0.78 0.73 0.76
R2 0.36 0.58 0.61 0.53 0.58
2
Adjusted R 0.33* 0.56* 0.58* 0.50* 0.56*
F 13.876* 22.412* 24.704* 17.886* 21.441*
* Significant at 0.001 level

GDPPC. This expression equals 0 for a per-capita
income level of about US$ 6,666. Hence, only beyond
this level do increasing individualism levels benefit
entrepreneurial activity. For comparison, 28 out of the
52 countries in our dataset have a per-capita income
level exceeding US$ 6,666.
In Model 3, the regression coefficients are all
significantly different to 0, and the regression is
statistically significant, with an adjusted R2 of 0.58.
The estimated regression equation is as follows:
TEA ¼ 24:175  0:295INDCOL
 20:969DEVELOP LEVEL
þ 0:346DEVELOP LEVEL INDCOL
The multiple regression function has the following
interpretation. The coefficient of the dummy variable
DEVELOP_LEVEL estimates the differences in TEA
level between the two groups of countries. The
estimated difference is -20.969, and the p-value shows
that the difference is significantly different to 0.
For the relatively poor countries, the estimated
regression equation can be written as follows:
TEA poor ¼ 24:175  0:295INDCOL
For the relatively rich countries, the estimated
regression equation can be written as follows:
TEA rich ¼ 24:175  0:295INDCOL
 20:969 1 þ 0:346 1 INDCOL
¼ 3:206 þ 0:051INDCOL
In short, and as expected, in the developed countries
the slope is positive, in other words the greater the level
of individualism, the higher the TEA. In contrast, in
developing countries, the slope is negative, in other
words the greater the level of individualism, the lower
the TEA. The corresponding p-value shows that the
difference in the slope is significantly different to 0.
The same results are obtained when the TEA is
measured taking into account the motivations driving the
entrepreneurial activity (Models 4 and 5). The adjusted
R2 for Models 4 and 5 gives values of 0.50 and 0.56,
respectively. In other words, over 50% of the variance in
TEA_Opp and TEA_Nec is explained. Model 4 can be
written for the relatively poor countries as TEA_Opp
poor = 17.26 - 0.224INDCOL, and for the relatively
rich countries as TEA_Opp rich = 1.296 ? 0.062IND-
COL. Model 5 can be written for the relatively poor
countries as TEA_Nec poor = 7.901 - 0.094IND-
COL, and for the relatively rich countries as TEA_Nec
rich = 0.971 ? 0.002INDCOL.
In short, the relationship between individualism
and entrepreneurial activity (whether the motivation
is necessity or opportunity) is statistically significant.
The relationship is positive for the relatively rich
countries and negative for the relatively poor ones.
It can be seen from the analysis of all the results
that the I–C predicts the TEA rates. With these results
we can accept the three proposed hypotheses.
6 Conclusions and implications
We have stated that levels of entrepreneurial activity
differ enormously between countries, even between

123
Relationship between individualism–collectivism and entrepreneurship
countries with similar levels of economic develop-
ment. The stability of these differences has led us to
propose that such a disparity could not be explained
only through variables of an economic nature, but
that other factors such as culture might be determi-
nants of these differences.
Individualism has traditionally been positively
linked with entrepreneurial activity, arguing that the
search for personal objectives (a dominant aspect in
individualist cultures) would be positively associated
with the entrepreneurial spirit, and indeed, in some
studies, empirical evidence has been found for this
relationship. However, in other studies the opposite
relationship has been argued, with some empirical
support, in other words, that there is a positive
relationship between collectivism and entrepreneurial
activity.
Thomas and Mueller (2000) have stated that when
differences exist in culture or in economic systems,
conventional theories (mainly aimed at developed
countries) could not explain the effects observed and
the behaviour particularly when interaction with the
environment needs to be taken into account. This
suggests that both economic and cultural factors
should be taken into account simultaneously. Along
this line of analysis, Wennekers et al. (2005) state
that the level of development could interact with
other determining factors of the level of entrepre-
neurial activity. Wennekers et al. (2005) see that the
relationship between the rate of start-up firms and
that of economic development is not linear, but has a
U-shape, which indicates that the sign of the
relationship changes at a certain level of economic
development and that, moreover, there may be effects
on interaction in the sense that the level of economic
development influences the effects of other deter-
mining factors.
Using a broad sample of 52 countries that have
participated in the GEM study, we have herein been
able to verify that, although the individualist–collec-
tivist spirit of a country is related to entrepreneurial
activity, it cannot be stated that a greater level of
individualism results in higher levels of entrepre-
neurial activity, but rather that this relationship is
modified by the level of economic development.
The results of the current study support Tiessen’s
(1997) work, in which this author breaks with the
initial idea that entrepreneurship is associated with
33
individualism and argues that both individualism and
collectivism contribute to entrepreneurial activity.
The results obtained here show that neither individ-
ualism nor collectivism necessarily predict the level
of entrepreneurship, but rather that the relationship is
moderated by the level of economic development.
Hui and Triandis (1986) argue that collectivism
can be succinctly defined using the word ‘‘concern’’,
which refers to commitment and ties to others. In
countries with a collectivist culture and low levels of
economic development, such ‘‘concern’’ for others
drives forward the search for a business opportunity
that allows the group to improve while at the same
time satisfying the need for affiliation, a characteristic
trait of businesspeople in collectivist cultures, as
verified by Baum et al. (1993). However, in devel-
oped countries, entrepreneurial activity is associated
with personal achievement, not forgetting the premise
that the entrepreneurial spirit can also find a place
among larger firms in developed countries without
the need to create other new ones, and this fact is
consistent with the fact that TEA is less in these
countries.
The relationship among individualism, level of
economic development and new firm creation is a
central topic in the field of entrepreneurship. In this
study, we have used moderated regressions in order
to explore the moderating effect of the level of
economic development on the relationship between
individualism and new firm creation. The results of
the analysis have shown that the level of economic
development is critical because it establishes the
context in which to assess the relationships between
individualism–collectivism and new firm creation.
In short, both orientations (individualism and
collectivism) can contribute to firm creation. The
most important implication in this study, in terms of
adopting policy measures, is that the level of
economic development and culture, I–C should not
be regarded independently: both variables interact in
their relationship with entrepreneurial activity. As
these factors (level of development and culture) are
of a structural nature (Wennekers et al. 2005), the
differences in the levels of entrepreneurial activity
tend to remain stable. Consequently, in the short
term, the influence of government policies for driving
entrepreneurial activity may be extremely modest. In
the long term, policies may have a greater impact
123
34
through the gradual evolution of culture and devel-
opment. Moreover, in line with the results of our
research, in order to be effective, any policy measure
will have to be different for each country according to
individual levels of economic development and I–C
culture, breaking away from the idea that individu-
alism is always positively correlated to entrepreneur-
ial activity. In countries with a lower average wage,
measures should be encouraged that affect the
satisfaction of the need for affiliation (such as
promoting cooperatives), although for more devel-
oped countries, the emphasis should lay on the
satisfaction of other needs such as self-realisation and
personal achievement.
Our conclusions would complement the recom-
mendations made by Wennekers et al. (2005) on
concrete measures for economic policy that would be
more effective in accordance with the level of
economic development of each country.
In short, we believe that the current study is
important because it provides empirical evidence
supporting the following conclusions: firstly, the
country’s level of development moderates the rela-
tionship between culture and entrepreneurship; sec-
ondly, a country’s individualist–collectivist culture is
associated with its level of entrepreneurship; thirdly,
for countries with a medium/low development level,
the higher the collectivist orientation is, the higher
the level of entrepreneurship (measured as TEA, TEA
opportunity, and TEA necessity); fourthly, for devel-
oped countries, the higher the individualist orienta-
tion is, the higher the level of entrepreneurship
(measured as TEA, TEA opportunity and TEA
necessity).
Lastly, it is necessary to consider some of the
possible limitations of our study. The first is the time
gap between the measurements of entrepreneurial
activity and measuring the level of individualism.
Some authors have questioned to what extent Hofst-
ede’s cultural measurement (which we have used
here) is still valid in the present day (Tang and
Koveos 2008) considering the data were collected by
Hofstede between 1967 and 1969 and again between
1971 and 1973. There is no doubt that the stability of
the I–C index is a crucial aspect of our study, and we
would underline that there is scientific research that
supports its validity in a more recent context. In this
sense, McGrath et al. (1992b) verify that the
123
M.-J. Pinillos, L. Reyes
individualist/collectivist dimension of culture consti-
tutes a longlasting cultural value, which is stable over
time and is hard to manipulate; Sondergaard (1994),
in his study of the reviews, citations and replies to the
work of Hofstede, highlights the fact that the
differences foreseen by Hofstede’s dimensions have
been widely confirmed, and in particular that of the
I–C; more recently, Kirkman et al. (2006) concluded
that studies published from the viewpoint of the
Hofstede (1980) study have upheld and increased
their conclusions. Moreover, differences foreseen
between countries are maintained, and thus ‘‘Hofst-
ede’s values are clearly relevant for additional cross-
cultural research’’ (Kirkman et al. 2006, p. 308). In
addition, Hofstede (2001, p. 34) claims ‘‘that national
cultures are extremely stable over time’’. He argues
that ‘‘… this stability can be explained from the
reinforcement of culture patterns by the institutions
that themselves are products of the dominant cultural
value systems’’. In the long run, ‘‘cultures shift, but
they shift in formation, so that the differences
between them remain intact’’ (Hofstede 2001,
p. 255). In the same sense, Inglehart and Welzel
(2005), from data on the study of values in the
countries involved from data proceeding from coun-
tries in several successive waves of data (1981, 1990,
1995, 1999, and 2000), indicate the fact that society,
albeit historically Protestant, Orthodox, Islamic or
Confucianist, generates cultures with distinctive
value systems, which persist even when the effects
of economic development are controlled. Although in
the long term, value systems can evolve, value
systems of different societies have not converged,
and cultural differences were empirically as large in
2001 as they were 20 years before.
Moreover, Chaps. 2 and 5 of Hofstede’s book
present abundant statistical information on the sta-
bility and reliability of the I–C index. All of this,
therefore, leads us to coincide with the ideas of
Wennekers et al. (2007, p. 148) (although these
authors refer to indices of uncertainty avoidance and
we refer to the I–C index) when they state ‘‘[o]ur best
assessment is that this index can be used for
explaining national rates of entrepreneurship during
several decades following the measurement of the
index’’.
The second limitation concerns the supposed
excessive simplification of Hofstede’s cultural model
Relationship between individualism–collectivism and entrepreneurship 35

(Schepers 2006). However, Hofstede (2006) defends
his model by arguing that humans have only limited
capacity to process information in their minds, so
models that are too complex are unlikely to be useful.
The clarity and simplicity of the indicators in
Hofstede’s model mean that researchers still consider
them to be particularly useful when analysing cultural
differences across countries (Kirkman et al. 2006).
Finally, the current study uses GDPPC (an objec-
tive indicator of a country’s level of economic
development) to analyse the relationship between
I–C and TEA. Future research might usefully exam-
ine how individuals’ perception of well-being affects
entrepreneurial activity. Following the path marked
out by Wennekers et al. (2002) and Hunt and Levie
(2003), it would be interesting to find out if individ-
uals’ perception of well-being also moderates the
I–C–TEA relationship. Such a study, which could use
data from the World Values Survey (Inglehart 1997),
would add a perspective that sheds more light on this
important question.
Appendix I
See Table 3.

Table 3 Clusters of countries and mean TEA rate

Developing countries TEA (%) Developed countries TEA (%)

Argentina 12.4 Australia 11.9

Brazil 12.8 Austria 3.8
Colombia 22.6 Belgium 3.4
Croatia 5.3 Canada 8.5
Chile 13.3 Czech Republic 7.9
China 14.0 Denmark 5.3
Ecuador 27.2 Finland 5.3
Hungary 6.2 France 3.9
India 10.9 Germany 5.0
Indonesia 19.3 Greece 6.5
Jamaica 18.7 Hong Kong, China 4.9
Jordan 18.3 Ireland 7.9
Korea, Rep. 14.4 Israel 5.7
Malaysia 11.1 Italy 5.1
Mexico 10.6 Japan 2.6
Peru 35.5 Netherlands 4.9
Philippines 20.4 New Zealand 15.1
Poland 7.7 Norway 8.1
Russian Federation 4.3 Portugal 6.6
Serbia 8.6 Singapore 5.1
South Africa 6.0 Slovenia 4.2
Thailand 20.4 Spain 6.2
Turkey 5.8 Sweden 4.1
Uruguay 12.4 Switzerland 6.7
Venezuela 24.1 United Arab Emirates 6.1
United Kingdom 5.8
United States 10.9
N = 25 countries that have participated in at least one GEM N = 27 countries that have participated in at least one GEM
edition and have I–C culture and GDP per capita data available edition and have I–C culture and GDP per capita data available

123
36
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