Description
Globalisation And Entrepreneurship In Developing Countries Of Sub-saharan Africa Mauritius An Agenda For Study
MARKETING AND STRATEGY RESEARCH UNIT
Globalisation and entrepreneurship in developing
countries of sub-Saharan Africa:
Mauritius: an agenda for study
Dev K. Boojihawon
May 2004
04/03
ISBN 0 7492 0097 9
©Dev K. Boojihawon
Dr Dev K. Boojihawon, Lecturer in Strategic Management
The Open University Business School, Walton Hall, Milton Keynes, MK7 6AA
Email: [email protected]
Tel: 01908 858298
Fax: 01908 655898
Opinions expressed herein, together, of course, with any errors remain the
responsibility of the author.
1
Abstract
Mauritius has been variously described to the world as the ‘Pearl of the Indian Ocean’ and the
‘African Tiger’ due to its uniqueness as an island economy. These recognitions point not only
to its reputed and sustained natural beauty, but also to its remarkable economic performance
for the last three decades. Altogether, the country has performed a remarkable balancing act in
preserving its natural assets and implementing a rigorous industrialisation process to meet the
demands of globalisation. This has made Mauritius an ‘outlier’ (Wignaraja, 2002) amongst
the sub-Saharan African economies. Nevertheless, these very economies have given much
admiration and study to the ingenuity of Mauritian firms in managing globalisation. Thus,
taking a firm-level perspective, this paper aims to question the extent to which ongoing
globalisation has benefited or inspired entrepreneurialism in the Mauritian economy. This
paper is a work in progress. It examines a conceptual framework that aims to take a holistic
examination of the impact and influence of spillovers from multinational activities on local
entrepreneurship and SME development. The framework considers four constructs that are
argued to influence entrepreneurial dynamism in a developing country context. Analyses of
the relationships between these constructs are expected to provide insights into the working
and management of entrepreneurship in a developing economy like Mauritius. The paper ends
with thoughts on policy and managerial implications.
1. Introduction
In the past two decades, Mauritius has experienced a rapid transformation as an economy. It
moved from being a single crop (sugar) producer to becoming one of the leading exporters of
manufactured products in sub-Saharan Africa. This fast progression has been the result of an
aggressive market-oriented development strategy back in the early 1980s. In essence, this
strategy promoted trade liberalisation and pulled foreign direct investments for an organised
export processing zone (EPZ). In the 1990s, fostering this strategy, the country further
consolidated its thriving tourism industry and diversified into novel economic avenues, such
as the offshore and financial services sectors, thus adding extra support to the economy. At
present, the country is contemplating the next leap in its economic liberalisation. It is now
deepening its diversification into information, communication and computer technologies. It
is extending its vision as a new, small and open service economy in the global era of the
twenty-first century.
The key determinants of its success in this momentum can be attributed to a combination of
factors including attractive foreign investment incentives, a stable political and
macroeconomic climate and a consistent supply of versatile, highly skilled and multilingual
labour. But more importantly, particularly when compared to the rest of sub-Saharan Africa,
one key success factor has been its effectiveness in adapting to global changes. It has relied
mostly on its entrepreneurial capability to penetrate into economic areas promising viable
growth and development.
2
Despite these strengths, the island has numerous vulnerabilities and others which are
emerging as it deals with pressures to reinvent itself economically. For instance, at a macro
level, it is about to lose its preferential access to European markets with respect to textile and
clothing trade as strong international competition (from other African nations and Asia) vies
over Mauritius’s textile contracts and markets. Its sugar industry is struggling with
decreasing prices in the world market. Its tourism industry feels saturated with over-capacity,
and the offshore financial services sector is facing international disrepute. At a micro level,
the pressures triggered by these macroeconomic changes are affecting the local economy.
Small firms are responding to global pressures with limited awareness of the net impact on
their economic activities. Public and private local businesses and managers are constantly
dealing with multi-faceted questions on how to integrate and manage twenty years of
successful multinational presence in the country and how to effectively adapt to the ongoing
process of globalisation. So far, it is deemed that the government’s policy at managing such
challenges at micro level and supporting SME (small and medium size enterprise)
development has been weak mainly due to its primary concern over macro economic
variables.
Interestingly, the above scenario does not belong only to Mauritius. The literature studying
the local impact of globalisation on developing countries suggests that there is virtually no
work examining the impact of multinationals on domestic entrepreneurship (Caves, 1996,
2000; Wells, 1998; Dunning and Narula, 1997). These authors argue that globalisation is
urging a radical reorientation in governments’ strategies in the developing countries as they
adapt to the continuously shifting economic and locational priorities of MNEs (multinational
enterprises). The economic criteria are increasingly inadequate to help governments conceive
competitive foreign direct investment (FDI) strategies. Instead, as Wells (1998) suggests,
there is a need for more grounded approaches to formulating such strategies, that is,
approaches which are embedded in the micro level of the economy. In particular, such
approaches should focus on how to promote and manage the relationship between FDI and
local entrepreneurship and development.
This paper supports this angle of study and proposes a conceptual framework that attempts to
examine entrepreneurial dynamism in the case of Mauritius. In support of this angle of study,
the paper first reviews and draws from the literature examining the impact of globalisation on
developing countries (Section 2). It then undertakes a critical theoretical assessment of the
effects of globalisation on Mauritius (Section 3) before proposing and discussing the
conceptual framework in Section 4. The paper ends with discussions on policy and
managerial implications (Section 5).
2. Globalisation, entrepreneurship and developing economies
According to Dunning and Narula (1997), there has been an overriding tendency, among
academics and practitioners alike, to envelope (although not always accurately) the generic
changes of the world economy of the last twenty to twenty-five years under the heading of
3
‘globalisation’. Although, this entails a simplification of various complex phenomena, the
concept has undergone many analyses, interpretations and definitions from various angles. All
of these have aimed to refine and understand the integral significance of the phenomenon in
the reconfiguration and organisation of the global economy of the twenty-first century.
The term is, therefore, used here in a broad sense to signify a ‘process’ (Hood and Young,
2000) of growing convergence of income levels and consumption between developed and
several developing countries and the growing interdependence between them. This process
has continuously highlighted the roles of the MNE as the driver, enabler and promoter of the
globalisation process. Indeed, the MNE has variously undertaken these roles in co-ordinating
and transacting on a global scale in order to optimise market, cost and competitive variables
in a liberalising global business environment. In parallel to this, the corporate imperatives of
these firms have had much influence on the policies of national and subnational governments.
In fact, such imperatives have meant increasing pressure on governments to out-think
competing countries by formulating competitive national strategies to divert the spatial
organisation of multinational activities in directions conversant with their economic
development goals. Yet, it is clear that the motives of multinationals and governments have
not always been compatible, and subsequently globalisation has not affected all countries and
regions to the same extent (Dicken, 1992; Amin and Thrift, 1994; Dunning and Narula, 1997).
Consequently, this incompatibility has perpetuated and has developed into what is essentially
a dichotomy of countries. On the one hand are the regions of the world – namely the
developed world – where globalisation has rejuvenated the economic development of nations
and accelerated wealth-creation capabilities in addressing a distinct period of high economic
growth and international competitiveness. On the other hand, is the developing world where
economies have found it difficult to seize or maximise on the opportunities offered by a
liberalised market environment. This divide perpetuates and widens to date. The developed
world is observed to enmesh itself further into the globalisation process by taking steps to
maximise its benefits and to ease the adjustments of its demands. The developing world, in
contrast, is driven by the global race for FDI, increasing the reliance of constituent countries
on foreign investments to consolidate their local economies. This has implied the continuous
restructuring economic activities in terms of effectiveness and efficiency in production
processes and constant amelioration of local infrastructures in order to compete efficiently
and speed up the process of global economic integration. All this has fundamentally altered
the nature of competition at entrepreneurial and international levels among developing
countries.
To illustrate, there has been a dramatic increase in the global demand for FDI in the
developing world over the last three decades. Until recently, FDI (primarily in the form of
greenfield investments) has been acknowledged as one of the safest and the predominant
source of external finance despite the subsequent Mexican, Asian and other crises in the
1990s (Singh, 2001). For instance, World Bank figures illustrate that net resource flows to all
4
developing countries rose from only US$11 billion or so in the 1970s to more than US$80
billion in 1980 and to just over US$100 billion in 1990 (World Bank, 2001). However, the
same source also indicates that such investments remain concentrated in the hands of the few
fast-growing nations with already high savings and investment rates. For example, ten
countries accounted for nearly three-quarters of the total FDI inflows in 2000 (World Bank,
2001, p. 38). This illustrates a further divide among developing countries and it leaves those
with low income and savings rates in need of more FDI to meet their developmental goals. In
fact, Dunning and Narula (1997, p. 3) go so far as to describe two categories of developing
countries: the first comprising the (primarily Asian) NICs (Newly Industrialised Countries),
which have been fast in catching up and converging with the developed countries; and the
second consisting of those which have diverged away either because they have ‘stayed
behind’ or because they have ‘stumbled back’ in both a relative and absolute sense.
In reference to the first category, this can encompass the cases of the East Asian economies,
which successfully attracted foreign trade and investment from North America, Western
Europe and J apan in the 1970s and 1980s (examples include Singapore, Hong Kong, South
Korea and Taiwan). Although a highly complex process, these countries succeeded primarily
because they were able to improve the quality of their local infrastructure, the skill base of
their workforce and enhance their competitiveness by creating networks of driven and
entrepreneurial SMEs to link and support the foreign investments. Mirza (2000, p. 203) shows
this very clearly:
… For instance, although the establishment of manufacturing industries in Singapore
was overwhelmingly due to the efforts of foreign MNEs, in other newly industrialising
economies (NIEs) local companies were often to the fore, albeit frequently as suppliers
and subcontractors to major Triad companies. These local companies, which ultimately
became East Asia’s DCMs, were also heterogeneous … in Taiwan, SMEs were the
driving force; in Hong Kong the picture was very mixed, with foreign MNEs, large
combines and SMEs all playing a role. Such complexity has persisted as
industrialisation has spread beyond these ‘first-order’ NIEs to other parts of the
region…
In this way, trade and investments became the principal mechanisms for driving
entrepreneurship and growth amongst SMEs, allowing for the transmission of innovative
ideas, marketing networks, effective management practices and technology and knowledge
transfer – all prerequisites for firms competing in global markets. To further sustain their
growth and accelerate their economic integration with the rest of the world, many of the East
Asian economies also converged into regional trading arrangements (the Association of
Southeast Asian Nations (ASEAN) is a good example in point).
Other developing countries followed quickly and almost simultaneously in the footsteps of the
ASEAN economies, but not with as much success. Among these were Mexico and the Latin
5
American countries (for example, Brazil and Argentina) which adopted development
strategies that increasingly relied on inbound FDI to upgrade their indigenous resources and
improve the competitiveness of their domestic industries. But, for the most part, the countries
that have lagged behind are those from Africa. Unlike the East Asian and Latin American
economies, globalisation brought few economic gains to Africa. Mytelka (2000) explains that,
unlike the ASEAN countries, African countries have been unable to improve their human and
technological infrastructures, macro-economic policies and institutional frameworks. These
factors have affected Africa’s ability to attract as the global race intensified.
Further studies by the likes of Dohlman and Halvorson-Quevedo (1997) and Arzeni and
Pellegrin (1997) have demonstrated that African economies have found global economic
integration difficult unless they are supported by some strong catalysts of economic
cooperation, protectionism or international support (a case in point is the recent introduction
of the African Growth and Opportunities Act (AGOA) by the US). More particularly, these
authors argue that the entrepreneurial forces are nascent or weak. There is a general lack of
awareness about the possible gains and consequences of ongoing globalisation, a difficulty in
establishing partnerships and strategic alliances between local SMEs and MNEs, limited
marketing and managerial capabilities and limited capacity to implement latest ICT
applications. A few exceptions, however, have been countries like Botswana and Mauritius
where significant economic gains have been achieved despite the underlying deficiencies.
These countries are, to date, the good examples of successful economic development in sub-
Saharan Africa.
This paper explores the specific context of Mauritius as a successful sub-Saharan African
nation in managing its inherent economic challenges in the context of globalisation. The next
section discuss the policies and strategies of Mauritius in managing ongoing globalisation.
3. Globalisation, entrepreneurship and Mauritius
Mauritius is thriving as a small sub-Saharan African economy with an average annual growth
rate of 5 per cent and with one of the highest per capita incomes ($4,000) in the region. The
island has come a long way from its initial status as a monocrop economy based on sugar
cane production since its independence in 1968 to a primarily manufacturing based economy
in the 1990s. The agricultural sector now accounts for approximately 7 per cent of the GDP
and earnings from sugar exports represent 20 per cent of total domestic exports compared to
over 95 per cent in the early 1970s (Business Africa, 2002a, b; African Business, 2003).
The late 1970s and early 1980s, in fact, were landmark periods of the country’s turnaround in
its national strategy to encourage manufacturing-oriented policies. Following the ‘sugar rush’
of the late 1960s, the country economically stagnated with problems of high unemployment,
growing population of skilled labour and rising standard of living of the working population.
The country struggled to establish itself as a member of the elite NIEs mentioned before but
6
gained the status by establishing an Export Processing Zone (EPZ) as an industrial framework
to accelerate rapid development through export liberalisation.
The result, two decades later, was the structural transformation of the Mauritian economy.
The EPZ sector has prospered by harbouring foreign investments and subsidiaries from
France, Germany, Hong Kong, the Netherlands, Singapore, the U.S. and others, and gaining
preferential access into European markets. The EPZ sector currently hosts more than 500
companies involved in a variety of activities such as textiles and clothing, toys, electronics,
precision engineering and plastics, assembly of watch movement, jewellery, printing and
publishing, software development and related IT operations. By far, the EPZ sector has been
the biggest foreign exchange earner on the island for the past ten years accounting for 12.3 per
cent of the GDP and contributing to some 36.1 per cent of the total exports in the same period
(African Business, 2003). The prospects of the manufacturing sector also generated a great
deal of local entrepreneurial interests which led to the proliferation of highly interdependent
small and medium size businesses in the sector. Using survey data from a recent study
Wignaraja (2002, p. 93) highlights the following:
- there were 411 large firm and 5,320 SMEs in the manufacturing sector in 1997.
- SMEs accounted for 21.7 per cent of manufacturing employment in 1997.
- SMEs accounted for only US$ 23.5 million (or 2.2 per cent) of manufactured exports and
large firms for US$ 1.1 billion in 1997; within this, SMEs contributed only 1.1 per cent of
garment exports.
- in terms of labour productivity, SMEs were below large firms in most industries.
Learning quickly from the demise of the sugar boom in the early 1970s, Mauritius did not
wait for another crisis point to devise alternative national strategies to secure the economic
health and prosperity of the island. In the 1980s and 1990s the country decided to bolster its
economic vulnerability by further diversifying into the sectors of tourism and financial
services in order to complement the success of the manufacturing sector. In relation to the
tourist industry, the island promoted itself as an attraction to high-spending tourists to
maintain an up-market profile as a luxury holiday destination. The tourism sector has
prospered over the years, emerging as the second-largest foreign exchange earner and hosting
over 600,000 tourists annually. Along the same lines, the country also promoted the
modernisation of its financial and business services sector. Historically, the country’s
strategic location in the Indian Ocean made it highly appealing to international banks and
financial institutions, which led the island to establish an offshore financial centre in the
region. In the past ten years, this sector has grown to supply a wide range of services in
banking, insurance, capital market, global business and other financial intermediary
components. Its growth averages at a rate of 8.4 per cent per annum (Business Africa, 2002a;
African Business, 2003). Such economic success and achievements have won the island the
reputation of one of the most competitive economies of Africa.
7
But have these achievements prepared Mauritius adequately to benefit from or face the
challenges of globalisation in the twenty-first century? Debates on this issue have divided
speculators and commentators into optimists and pessimists. The optimists argue that the
island is prepared to adapt and profit from the prospects of ongoing globalisation. They argue
that the economic success of the island has established a reputation of excellence in the
African region, projecting reliability to foreign investors. Further, Mauritius continues to
reinforce its manufacturing-oriented policies by consistently investing in commercial
infrastructures whilst at the same time developing regional strategies to penetrate
neighbouring African markets on preferential treaties. But not all is good and well in
‘paradise’. Pessimists argue that the above reasons largely illustrate macro-level emphasis and
that the micro-level implications are not fully assessed and understood.
At a micro level, much reengineering and many adjustments are required in the management
of the local economy to increase the overall productivity and competitiveness of the country.
Despite the fact that the Mauritian government recognises that the real impetus of sustainable
and equitable growth lies with SMEs, their development has been a largely neglected area in
policy formulation and support (Ramsurrun and Darymple, 2002). In fact, there is a growing
argument to suggest incongruence in the national strategies of the government, the roles of
FDI and their relationships in promoting local entrepreneurship and development amongst
SMEs. Having said so, the government is determined and has made various efforts to increase
productivity in public as well as private sectors. But still, there are many discrepancies in the
rate of progress achieved in each sector. In the main, the civil service is bloated with
administrative bottlenecks in issuing licences and permits relating to foreign investments or
supporting small businesses in new ventures.
Empirically, Sannassee and Pearce (2002a, p.19) report that macro economic factors that were
the primary drivers of foreign investments into the country are now insufficient conditions for
sustained growth and are easily duplicated by competitors. In their opinion, sustainable
development initiatives should look beyond the establishment or protected phase of foreign
operations of MNEs. They should focus on ways of generating indigenous creative and
entrepreneurial capabilities to further embed MNE activity into the local context, if not
encourage the emergence of domestic multinationals. Furthermore, World Bank (2001)
analyses of the country further explain the inherent problems related to inefficient
management practices. For instance, there is lack of awareness on productivity and
competitiveness issues among SMEs. They have limited capability to improve technological
application (see also Sannassee and Pearce, 2002b), and local private sector delivery of
productivity and support services is non-existent.
The next section outlines a conceptual framework that can provide insights to address the
problems highlighted above.
8
4. Conceptualisation and propositions for research: examining entrepreneurial
dynamism in the Mauritian context
Despite the centrality of the relationship between FDI and economic development in
developing economies, there is no systematic theory or empirical work addressing the
sustained impact of multinational activities on local entrepreneurship and SME development
(Dunning and Narula, 1997; Wells, 1998; Caves, 1996, 2000). More specifically, these
authors argue for the following gaps in the literature:
Caves (1996, 2000) notes that studies relating to FDI to date have identified various
channels for spillovers (‘transfers of knowledge that result in productivity increases’,
2000, p. 1) from multinational activity to local host enterprises. Indeed, empirical
quantitative analyses have demonstrated positive effects on the productivity of local
firms that compete and supply them. However, there is little evidence on the factors that
determine the use of knowledge stocks and their absorption and entrepreneurial
deployment in micro level firms in developing countries.
Wells (1998) makes a more or less similar assertion that although there is an abundance
of work that contributes to understanding the impact of FDI on developing economies,
‘none of these answer the question of net impact, even if the criteria are solely
economic; and they almost completely fail to address the issue of net impact using
broader criteria that prevail in practice’ (p. 103). He further suggests that such works do
not contribute to the tasks of managers, whether those managers are government
officials or business executives and entrepreneurs. Indeed, such analyses undertaken by
economists do not clarify adequately the firms and institutions involved, and the
managerial, behavioural and organisational practices that normally must be taken into
account by managers and entrepreneurs in developing countries.
Dunning and Narula (1997), Arzeni and Pellegrin (1997) and Hood and Young (2000)
explain that globalisation is seen to have a ubiquitous yet disparate impact in the case of
developing economies. These authors have also observed that these countries have
highly diverse and heterogeneous ways in dealing with the phenomenon. Overall, they
argue that globalisation has urged the development of unique strategies by governments
in the developing countries to respond to the changing needs and expectations of the
MNEs and the ways in which they approach to consolidate their local economies. In
particular, Arzeni and Pellegrin (p. 27) argue:
… large firms, now taking their lead from smaller ones, have embarked on a
process of re-organisation and decentralisation towards a flexible model of
production, with lean manufacturing processes, vertical disintegration and the
realisation of the value of local systems. Regions and cities have similarly come to
be regarded not as passive hosts relying purely on geographical coverage but as
active structures themselves capable of generating innovative processes … within
these local systems, competitors, customers, suppliers and specialised research and
training programmes concentrated in geographical area offer a propitious climate
for improvement and innovation … and the local environment has acquired an
9
important role, particularly in the support it brings to the creation and growth of
SMEs.
With specific reference to Mauritius, there is no literature concerning research on the
SME sector and the drivers of entrepreneurialism. Teal (1999) and Wignaraja (2002)
share this view. They assert that there is inadequate analysis and study of micro-
economic aspects of the Mauritian enterprise-level experience, and therefore limited
understanding of the dynamics of entrepreneurship and export performance.
Taking the above theoretical and practical issues into consideration, this paper proposes a
conceptual framework that attempts to explore the nature of spillovers from multinational
activities (mainly FDI), and their absorption and deployment by local SMEs in developing
countries, more specifically for Mauritius (Figure 1). In essence, the framework proposes to
understand the dynamism of entrepreneurship in examining how spillovers from MNE
activities are deployed, absorbed and affect entrepreneurial initiatives and business strategies
amongst SMEs in Mauritius.
Entrepreneurship is conceptualised as a combination of innovative, proactive, and risk-taking
behaviour undertaken by SMEs in order to exploit opportunities created by spillover effects.
Shane and Venkataraman (2000, p. 218) define the study of entrepreneurship as the
‘examination of how, by whom, and with what effects opportunities to create future goods
and services are discovered, evaluated, and exploited’. These authors emphasize that
entrepreneurship has two parts: (1) opportunities and (2) individuals who strive to take
advantage of them. The framework agrees with these observations and examines both
dimensions in studying SME activities.
But Shane and Venkataraman’s (2000) definition has been criticized for depicting
opportunities as being ‘objective phenomena’ that go beyond subjective recognition by people
influenced by their social and institutional context. The framework therefore incorporates two
contextual constructs, namely the ‘Role and Policies of the Mauritian Government’ and the
‘Social Capability of the Country’ to examine their influences on the process of
entrepreneurship in a local context. These are further explained below. Moreover, the concept
‘Entrepreneurial Dynamism’ is used here in a very broad sense to capture the adaptability and
flexibility of entrepreneurship in all its forms, domestic as well as international or adaptive vs.
opportunity vs. necessity
1
in the local context. In that respect, this study intends to move away
1
According to the Global Entrepreneurship Monitor (GEM), in the 20 countries surveyed in 2001, almost 150
million people are engaged in some form of entrepreneurial activity. GEM differentiates between ‘opportunity
entrepreneurship’ – growing business to take advantage of a unique market opportunity – and ‘necessity
entrepreneurship’ – the best option available. Sixty-three million people reported that they started their own
small businesses because there were no other choices for work. The GEM found that the prevalence rate for
necessity entrepreneurship was positively associated with economic growth, and can accordingly drive change at
a macroeconomic level in developing countries.
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11
from traditional macroeconomic analysis of the impact of globalisation and undertake a more
local, firm-level, in-depth approach in order to make a more grounded study of the research
propositions related to the framework outlined below.
Proposition 1: Spillovers from FDI inflows attract and enable local entrepreneurship in the
Mauritian context.
Apart from being a dominant source of external finance, the literature suggests that FDI
inflows are an important source of positive externalities for the local economy through
‘spillovers’. Lall (1995, p. 5) argues:
Transnational corporations are amongst the most powerful means available for
transferring modern technologies by developed countries and overcoming obstacles to
their utilisation. By virtue of their large internal markets for capital, skills and
technology and information, they face fewer market failures than local firms. In most
circumstances, therefore, there is no reason to restrict entry as their presence can only
benefit local productivity and competitiveness.
Along the same lines, Dunning and Narula (1997) and Singh (2001) also suggest that
developing countries should enhance the ability of their small firms to access and to utilise
effectively the stock of knowledge available from firms in economically and technologically
advanced countries. ‘Spillovers’ are, therefore, taken to capture the effects of FDI on local
Mauritian firms’ entrepreneurship and productivity. These encompass ‘the role and strategy of
the multinational firm’ in the developing country as well as the technological and knowledge
transfers undertaken in the process.
Proposition 2: At a micro level, SMEs in Mauritius are the main recipients of the spillovers
from MNE activities. These spillovers are entrepreneurially absorbed and deployed by the
SMEs in various idiosyncratic ways which tend to influence their overall strategy, learning
processes, human capital development and management practices.
Earlier discussions in this paper pointed to the significance of small businesses as the
backbone of the private sector in the developing world, including Mauritius (see, for example,
the websitehttp://www.bridges.org). In that respect, the importance of entrepreneurship in the
local economy cannot be underestimated. The crucial effects of spillovers from FDI on local
entrepreneurialism and SMEs’ activities should, therefore, be understood in order to frame an
effective and sustainable approach to support their growth and development. Furthermore,
referring to Figure 1, Arzeni and Pellegrin (1997) suggest that the changing imperatives and
nature of operations of small firms in developing countries signal that these firms should also
be studied in relation to their localised systems or formal or informal networks. These
networks could be clusters of firms specialised in various complimentary functions,
12
interacting and collaborating by pooling services, technology-diffusion and export promotion
amongst themselves, in order to enhance their flexibility and combat their isolation.
Therefore, in order to capture the absorption and deployment of spillovers in SMEs’
activities, this proposition attempts to examine the business strategies of the small firms in
Mauritius and their linkages with MNE activities. The proposition also seeks to explore the
effects on their processes of learning, adaptation and integration of technology and knowledge
that underpin their operations, and the impact on their human capital, particularly in terms of
skills development, sharing of knowledge and experience and development of managerial and
coordination skills.
Proposition 3: The Mauritian Government’s roles and policies towards FDI aim at facilitating
entrepreneurship and small firm development. This is achieved primarily by regulating the
processes that underpin the absorption and deployment of spillovers from multinational
activity.
The discussions in Sections 2 and 3 highlighted the marked significance and the redefinition
of the roles of the national governments of developing countries, as well as that of Mauritius,
in promoting and sustaining economic development. As Hood and Young (2000) highlight,
the roles and responsibilities of the State have already been transformed from an ownership
and control function to that of promoter and facilitating agent in the country’s development
process. There are demands on the State for more proactivity in enabling a strong national
environment as a place for multinational investment and international cooperation, thereby
supporting and promoting the private entrepreneurial process. In this respect, the main target
for the Government of Mauritius is to find an appropriate balance between governmental
regulation and free play of market forces. Indeed, there is no magic formula for this, but from
the government’s perspective, smart regulation is key. In fact, Singh (2001) supports this view
and argues that developing countries are only likely to benefit from FDI if it is integrated into
their national strategic and technological plans. Empirically, Agosin and Mayer (2000) have
concluded that the local economies prospered with investments in Asia where FDI was most
regulated, and slacked in Latin America where it was highly liberal. Overall, this means that
developing countries such as Mauritius need to regulate spillovers from FDI closely in order
to foster the promotion of local entrepreneurship and economic development and avoid
hindering it.
Proposition 4: Beyond economic and institutional factors, cultural and social variables come
into play and have a non-negligible impact on entrepreneurial dynamism in Mauritius.
Mauritius is renowned worldwide for its diaspora of multicultural and multiethnic
communities living together in social and cultural harmony. More interestingly, the local
population comprises races that some might view as incompatible. However, Chinese, Indians
(composing of Muslims, Hindus, and various other delimitation based on religion), Black
African and European cultures interact and socialise, and even conduct businesses, in a very
13
natural way. The prevalence of this multicultural attribute, therefore, does give reason to
believe that the influences on entrepreneurial dynamism in Mauritius go beyond pure
economics. This, in fact, is supported by the work of Taeube (2004) who examines the
relationships between the various cultures of India and forms of economic activities. He
recommends that the impact of the social system on economic development cannot be
discounted and it is important to study the relationship between the origin of successful
entrepreneurs and the society in which they live. He further adds that, in essence, all channels
that transmit different cultural values through social capital or ethnic networks into human
and even physical capital should be assessed. This is a plausible proposition that applies more
particularly to Mauritius, not only because it is multicultural, but also because the literature
suggests that entrepreneurship in the local economy of developing countries is highly
unorganised and informal, and is dominated by entrepreneurs who depend on investments
(human as well as financial) from friends and families to survive and grow. The premise of
entrepreneurial dynamism should therefore be considered in its integral societal context. The
framework uses the concept of ‘Social Capability’, put forward by Ambrovitz (1986), to refer
to the social and cultural infrastructure of a country and to incorporate the examination of
such issues into this study.
5. Concluding remarks on implications for policy and management
As illustrated in this paper, the ongoing pace of globalisation of developing countries has
rendered the question of survival in a highly dynamic and interdependent international
economy more challenging for developing countries. At present, this seems to be the very
question for Mauritius: ‘Can Mauritius reinvent itself as an international economy and
redefine the future of its economic success in view of the challenges of globalisation in the
twenty-first century?’ This paper brings to the fore a proposal to investigate the nature of
entrepreneurial dynamism as a basis of its future economic success. The study aims to
consider the impact and relationship of spillovers from MNE activity on local SME
entrepreneurship. It is argued that this issue is central not only to the sustainable economic
development of Mauritius but also many African economies. This is also a neglected area of
research assessing the local impact of globalisation. It has been minimally addressed by FDI-
oriented studies in economics, international business and entrepreneurship.
Methodologically, this study intends to adopt an in-depth qualitative approach to research and
analyse the underlying propositions in the context of Mauritius. It is also expected at this
stage that the potential of the findings of this research will be of relevance to both policy-
makers and managers of MNEs and SMEs.
From a policy perspective, as argued in the discussion of Propositions 3 and 4, the roles and
policies of the State have become very crucial in performing a balancing act between
regulation and free market forces. Referring to the conceptual framework, it is argued that
government roles and policies for local economies should consider the nature of spillovers
from multinational activities. These hold the potential to diffuse information knowledge on
production techniques and new technologies into local markets, possibly creating or
14
enhancing a continual process of innovation and entrepreneurship that neither the market nor
public authorities could have achieved alone. In other words, there are demands on national
governments of countries like Mauritius is to be more pragmatic in dealing with and
regulating MNE activities (Dunning and Narula, 1997; Dohlman and Halvorson-Quevedo,
1997). They have to take a systematic and integrated approach towards upgrading the
resource creation and usage through spillovers, and maintaining long-term competitiveness.
At a macro level, what seems to be necessary in policy-making is an enabling and favourable
environment for efficient resource allocation that will appeal to foreign investments and, at a
micro level, an environment that promotes entrepreneurship would allow SMEs to strengthen
their businesses and would encourage them to think globally in producing high quality
products as marketable in domestic as in international markets.
Hence for SMEs, the framework attempts to emphasise their roles and operations in a global
context by examining the relationship between their entrepreneurial and business activities
and the spillovers from MNE activities in their respective country (Proposition 2). SMEs in
developing countries are urged to take an international perspective on their strategies and
competitiveness in the light of the changing imperatives highlighted in Figure 1. The
changing scenes of the global context seem to promote a trend for flexible specialisation for
SMEs as their advantage lies in their inherent flexibility to adapt relatively easy to
international markets requirements. Managers of SMEs in developing countries like
Mauritius, therefore, need insights on how to use their firm-level abilities to promote an SME
culture of flexible specialisation in interacting and defining the interdependence with
multinationals or their local networks. Such insights enable them to have an important impact
on economic development, rural industrialisation and social integration. For managers of
MNEs or their foreign subsidiaries (proposition 1), insights from this study can guide their
international locational decisions or how multinationals’ strategies should respond to
government policies in developing countries (Wells, 1998).
In summary, there is universal acknowledgement of the significance of FDI as a dominant
source of external finance as well as its roles in the economic development in developing
countries. There is no doubt that these countries have the potential to learn and profit from the
experiences of the developed world. They can adopt and adapt best practices to their own
situation, but in the end, it is largely the entrepreneurial motivations and actions of people in
the developing countries themselves that will determine the pace at which they can benefit
from globalisation.
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doc_280989270.pdf
Globalisation And Entrepreneurship In Developing Countries Of Sub-saharan Africa Mauritius An Agenda For Study
MARKETING AND STRATEGY RESEARCH UNIT
Globalisation and entrepreneurship in developing
countries of sub-Saharan Africa:
Mauritius: an agenda for study
Dev K. Boojihawon
May 2004
04/03
ISBN 0 7492 0097 9
©Dev K. Boojihawon
Dr Dev K. Boojihawon, Lecturer in Strategic Management
The Open University Business School, Walton Hall, Milton Keynes, MK7 6AA
Email: [email protected]
Tel: 01908 858298
Fax: 01908 655898
Opinions expressed herein, together, of course, with any errors remain the
responsibility of the author.
1
Abstract
Mauritius has been variously described to the world as the ‘Pearl of the Indian Ocean’ and the
‘African Tiger’ due to its uniqueness as an island economy. These recognitions point not only
to its reputed and sustained natural beauty, but also to its remarkable economic performance
for the last three decades. Altogether, the country has performed a remarkable balancing act in
preserving its natural assets and implementing a rigorous industrialisation process to meet the
demands of globalisation. This has made Mauritius an ‘outlier’ (Wignaraja, 2002) amongst
the sub-Saharan African economies. Nevertheless, these very economies have given much
admiration and study to the ingenuity of Mauritian firms in managing globalisation. Thus,
taking a firm-level perspective, this paper aims to question the extent to which ongoing
globalisation has benefited or inspired entrepreneurialism in the Mauritian economy. This
paper is a work in progress. It examines a conceptual framework that aims to take a holistic
examination of the impact and influence of spillovers from multinational activities on local
entrepreneurship and SME development. The framework considers four constructs that are
argued to influence entrepreneurial dynamism in a developing country context. Analyses of
the relationships between these constructs are expected to provide insights into the working
and management of entrepreneurship in a developing economy like Mauritius. The paper ends
with thoughts on policy and managerial implications.
1. Introduction
In the past two decades, Mauritius has experienced a rapid transformation as an economy. It
moved from being a single crop (sugar) producer to becoming one of the leading exporters of
manufactured products in sub-Saharan Africa. This fast progression has been the result of an
aggressive market-oriented development strategy back in the early 1980s. In essence, this
strategy promoted trade liberalisation and pulled foreign direct investments for an organised
export processing zone (EPZ). In the 1990s, fostering this strategy, the country further
consolidated its thriving tourism industry and diversified into novel economic avenues, such
as the offshore and financial services sectors, thus adding extra support to the economy. At
present, the country is contemplating the next leap in its economic liberalisation. It is now
deepening its diversification into information, communication and computer technologies. It
is extending its vision as a new, small and open service economy in the global era of the
twenty-first century.
The key determinants of its success in this momentum can be attributed to a combination of
factors including attractive foreign investment incentives, a stable political and
macroeconomic climate and a consistent supply of versatile, highly skilled and multilingual
labour. But more importantly, particularly when compared to the rest of sub-Saharan Africa,
one key success factor has been its effectiveness in adapting to global changes. It has relied
mostly on its entrepreneurial capability to penetrate into economic areas promising viable
growth and development.
2
Despite these strengths, the island has numerous vulnerabilities and others which are
emerging as it deals with pressures to reinvent itself economically. For instance, at a macro
level, it is about to lose its preferential access to European markets with respect to textile and
clothing trade as strong international competition (from other African nations and Asia) vies
over Mauritius’s textile contracts and markets. Its sugar industry is struggling with
decreasing prices in the world market. Its tourism industry feels saturated with over-capacity,
and the offshore financial services sector is facing international disrepute. At a micro level,
the pressures triggered by these macroeconomic changes are affecting the local economy.
Small firms are responding to global pressures with limited awareness of the net impact on
their economic activities. Public and private local businesses and managers are constantly
dealing with multi-faceted questions on how to integrate and manage twenty years of
successful multinational presence in the country and how to effectively adapt to the ongoing
process of globalisation. So far, it is deemed that the government’s policy at managing such
challenges at micro level and supporting SME (small and medium size enterprise)
development has been weak mainly due to its primary concern over macro economic
variables.
Interestingly, the above scenario does not belong only to Mauritius. The literature studying
the local impact of globalisation on developing countries suggests that there is virtually no
work examining the impact of multinationals on domestic entrepreneurship (Caves, 1996,
2000; Wells, 1998; Dunning and Narula, 1997). These authors argue that globalisation is
urging a radical reorientation in governments’ strategies in the developing countries as they
adapt to the continuously shifting economic and locational priorities of MNEs (multinational
enterprises). The economic criteria are increasingly inadequate to help governments conceive
competitive foreign direct investment (FDI) strategies. Instead, as Wells (1998) suggests,
there is a need for more grounded approaches to formulating such strategies, that is,
approaches which are embedded in the micro level of the economy. In particular, such
approaches should focus on how to promote and manage the relationship between FDI and
local entrepreneurship and development.
This paper supports this angle of study and proposes a conceptual framework that attempts to
examine entrepreneurial dynamism in the case of Mauritius. In support of this angle of study,
the paper first reviews and draws from the literature examining the impact of globalisation on
developing countries (Section 2). It then undertakes a critical theoretical assessment of the
effects of globalisation on Mauritius (Section 3) before proposing and discussing the
conceptual framework in Section 4. The paper ends with discussions on policy and
managerial implications (Section 5).
2. Globalisation, entrepreneurship and developing economies
According to Dunning and Narula (1997), there has been an overriding tendency, among
academics and practitioners alike, to envelope (although not always accurately) the generic
changes of the world economy of the last twenty to twenty-five years under the heading of
3
‘globalisation’. Although, this entails a simplification of various complex phenomena, the
concept has undergone many analyses, interpretations and definitions from various angles. All
of these have aimed to refine and understand the integral significance of the phenomenon in
the reconfiguration and organisation of the global economy of the twenty-first century.
The term is, therefore, used here in a broad sense to signify a ‘process’ (Hood and Young,
2000) of growing convergence of income levels and consumption between developed and
several developing countries and the growing interdependence between them. This process
has continuously highlighted the roles of the MNE as the driver, enabler and promoter of the
globalisation process. Indeed, the MNE has variously undertaken these roles in co-ordinating
and transacting on a global scale in order to optimise market, cost and competitive variables
in a liberalising global business environment. In parallel to this, the corporate imperatives of
these firms have had much influence on the policies of national and subnational governments.
In fact, such imperatives have meant increasing pressure on governments to out-think
competing countries by formulating competitive national strategies to divert the spatial
organisation of multinational activities in directions conversant with their economic
development goals. Yet, it is clear that the motives of multinationals and governments have
not always been compatible, and subsequently globalisation has not affected all countries and
regions to the same extent (Dicken, 1992; Amin and Thrift, 1994; Dunning and Narula, 1997).
Consequently, this incompatibility has perpetuated and has developed into what is essentially
a dichotomy of countries. On the one hand are the regions of the world – namely the
developed world – where globalisation has rejuvenated the economic development of nations
and accelerated wealth-creation capabilities in addressing a distinct period of high economic
growth and international competitiveness. On the other hand, is the developing world where
economies have found it difficult to seize or maximise on the opportunities offered by a
liberalised market environment. This divide perpetuates and widens to date. The developed
world is observed to enmesh itself further into the globalisation process by taking steps to
maximise its benefits and to ease the adjustments of its demands. The developing world, in
contrast, is driven by the global race for FDI, increasing the reliance of constituent countries
on foreign investments to consolidate their local economies. This has implied the continuous
restructuring economic activities in terms of effectiveness and efficiency in production
processes and constant amelioration of local infrastructures in order to compete efficiently
and speed up the process of global economic integration. All this has fundamentally altered
the nature of competition at entrepreneurial and international levels among developing
countries.
To illustrate, there has been a dramatic increase in the global demand for FDI in the
developing world over the last three decades. Until recently, FDI (primarily in the form of
greenfield investments) has been acknowledged as one of the safest and the predominant
source of external finance despite the subsequent Mexican, Asian and other crises in the
1990s (Singh, 2001). For instance, World Bank figures illustrate that net resource flows to all
4
developing countries rose from only US$11 billion or so in the 1970s to more than US$80
billion in 1980 and to just over US$100 billion in 1990 (World Bank, 2001). However, the
same source also indicates that such investments remain concentrated in the hands of the few
fast-growing nations with already high savings and investment rates. For example, ten
countries accounted for nearly three-quarters of the total FDI inflows in 2000 (World Bank,
2001, p. 38). This illustrates a further divide among developing countries and it leaves those
with low income and savings rates in need of more FDI to meet their developmental goals. In
fact, Dunning and Narula (1997, p. 3) go so far as to describe two categories of developing
countries: the first comprising the (primarily Asian) NICs (Newly Industrialised Countries),
which have been fast in catching up and converging with the developed countries; and the
second consisting of those which have diverged away either because they have ‘stayed
behind’ or because they have ‘stumbled back’ in both a relative and absolute sense.
In reference to the first category, this can encompass the cases of the East Asian economies,
which successfully attracted foreign trade and investment from North America, Western
Europe and J apan in the 1970s and 1980s (examples include Singapore, Hong Kong, South
Korea and Taiwan). Although a highly complex process, these countries succeeded primarily
because they were able to improve the quality of their local infrastructure, the skill base of
their workforce and enhance their competitiveness by creating networks of driven and
entrepreneurial SMEs to link and support the foreign investments. Mirza (2000, p. 203) shows
this very clearly:
… For instance, although the establishment of manufacturing industries in Singapore
was overwhelmingly due to the efforts of foreign MNEs, in other newly industrialising
economies (NIEs) local companies were often to the fore, albeit frequently as suppliers
and subcontractors to major Triad companies. These local companies, which ultimately
became East Asia’s DCMs, were also heterogeneous … in Taiwan, SMEs were the
driving force; in Hong Kong the picture was very mixed, with foreign MNEs, large
combines and SMEs all playing a role. Such complexity has persisted as
industrialisation has spread beyond these ‘first-order’ NIEs to other parts of the
region…
In this way, trade and investments became the principal mechanisms for driving
entrepreneurship and growth amongst SMEs, allowing for the transmission of innovative
ideas, marketing networks, effective management practices and technology and knowledge
transfer – all prerequisites for firms competing in global markets. To further sustain their
growth and accelerate their economic integration with the rest of the world, many of the East
Asian economies also converged into regional trading arrangements (the Association of
Southeast Asian Nations (ASEAN) is a good example in point).
Other developing countries followed quickly and almost simultaneously in the footsteps of the
ASEAN economies, but not with as much success. Among these were Mexico and the Latin
5
American countries (for example, Brazil and Argentina) which adopted development
strategies that increasingly relied on inbound FDI to upgrade their indigenous resources and
improve the competitiveness of their domestic industries. But, for the most part, the countries
that have lagged behind are those from Africa. Unlike the East Asian and Latin American
economies, globalisation brought few economic gains to Africa. Mytelka (2000) explains that,
unlike the ASEAN countries, African countries have been unable to improve their human and
technological infrastructures, macro-economic policies and institutional frameworks. These
factors have affected Africa’s ability to attract as the global race intensified.
Further studies by the likes of Dohlman and Halvorson-Quevedo (1997) and Arzeni and
Pellegrin (1997) have demonstrated that African economies have found global economic
integration difficult unless they are supported by some strong catalysts of economic
cooperation, protectionism or international support (a case in point is the recent introduction
of the African Growth and Opportunities Act (AGOA) by the US). More particularly, these
authors argue that the entrepreneurial forces are nascent or weak. There is a general lack of
awareness about the possible gains and consequences of ongoing globalisation, a difficulty in
establishing partnerships and strategic alliances between local SMEs and MNEs, limited
marketing and managerial capabilities and limited capacity to implement latest ICT
applications. A few exceptions, however, have been countries like Botswana and Mauritius
where significant economic gains have been achieved despite the underlying deficiencies.
These countries are, to date, the good examples of successful economic development in sub-
Saharan Africa.
This paper explores the specific context of Mauritius as a successful sub-Saharan African
nation in managing its inherent economic challenges in the context of globalisation. The next
section discuss the policies and strategies of Mauritius in managing ongoing globalisation.
3. Globalisation, entrepreneurship and Mauritius
Mauritius is thriving as a small sub-Saharan African economy with an average annual growth
rate of 5 per cent and with one of the highest per capita incomes ($4,000) in the region. The
island has come a long way from its initial status as a monocrop economy based on sugar
cane production since its independence in 1968 to a primarily manufacturing based economy
in the 1990s. The agricultural sector now accounts for approximately 7 per cent of the GDP
and earnings from sugar exports represent 20 per cent of total domestic exports compared to
over 95 per cent in the early 1970s (Business Africa, 2002a, b; African Business, 2003).
The late 1970s and early 1980s, in fact, were landmark periods of the country’s turnaround in
its national strategy to encourage manufacturing-oriented policies. Following the ‘sugar rush’
of the late 1960s, the country economically stagnated with problems of high unemployment,
growing population of skilled labour and rising standard of living of the working population.
The country struggled to establish itself as a member of the elite NIEs mentioned before but
6
gained the status by establishing an Export Processing Zone (EPZ) as an industrial framework
to accelerate rapid development through export liberalisation.
The result, two decades later, was the structural transformation of the Mauritian economy.
The EPZ sector has prospered by harbouring foreign investments and subsidiaries from
France, Germany, Hong Kong, the Netherlands, Singapore, the U.S. and others, and gaining
preferential access into European markets. The EPZ sector currently hosts more than 500
companies involved in a variety of activities such as textiles and clothing, toys, electronics,
precision engineering and plastics, assembly of watch movement, jewellery, printing and
publishing, software development and related IT operations. By far, the EPZ sector has been
the biggest foreign exchange earner on the island for the past ten years accounting for 12.3 per
cent of the GDP and contributing to some 36.1 per cent of the total exports in the same period
(African Business, 2003). The prospects of the manufacturing sector also generated a great
deal of local entrepreneurial interests which led to the proliferation of highly interdependent
small and medium size businesses in the sector. Using survey data from a recent study
Wignaraja (2002, p. 93) highlights the following:
- there were 411 large firm and 5,320 SMEs in the manufacturing sector in 1997.
- SMEs accounted for 21.7 per cent of manufacturing employment in 1997.
- SMEs accounted for only US$ 23.5 million (or 2.2 per cent) of manufactured exports and
large firms for US$ 1.1 billion in 1997; within this, SMEs contributed only 1.1 per cent of
garment exports.
- in terms of labour productivity, SMEs were below large firms in most industries.
Learning quickly from the demise of the sugar boom in the early 1970s, Mauritius did not
wait for another crisis point to devise alternative national strategies to secure the economic
health and prosperity of the island. In the 1980s and 1990s the country decided to bolster its
economic vulnerability by further diversifying into the sectors of tourism and financial
services in order to complement the success of the manufacturing sector. In relation to the
tourist industry, the island promoted itself as an attraction to high-spending tourists to
maintain an up-market profile as a luxury holiday destination. The tourism sector has
prospered over the years, emerging as the second-largest foreign exchange earner and hosting
over 600,000 tourists annually. Along the same lines, the country also promoted the
modernisation of its financial and business services sector. Historically, the country’s
strategic location in the Indian Ocean made it highly appealing to international banks and
financial institutions, which led the island to establish an offshore financial centre in the
region. In the past ten years, this sector has grown to supply a wide range of services in
banking, insurance, capital market, global business and other financial intermediary
components. Its growth averages at a rate of 8.4 per cent per annum (Business Africa, 2002a;
African Business, 2003). Such economic success and achievements have won the island the
reputation of one of the most competitive economies of Africa.
7
But have these achievements prepared Mauritius adequately to benefit from or face the
challenges of globalisation in the twenty-first century? Debates on this issue have divided
speculators and commentators into optimists and pessimists. The optimists argue that the
island is prepared to adapt and profit from the prospects of ongoing globalisation. They argue
that the economic success of the island has established a reputation of excellence in the
African region, projecting reliability to foreign investors. Further, Mauritius continues to
reinforce its manufacturing-oriented policies by consistently investing in commercial
infrastructures whilst at the same time developing regional strategies to penetrate
neighbouring African markets on preferential treaties. But not all is good and well in
‘paradise’. Pessimists argue that the above reasons largely illustrate macro-level emphasis and
that the micro-level implications are not fully assessed and understood.
At a micro level, much reengineering and many adjustments are required in the management
of the local economy to increase the overall productivity and competitiveness of the country.
Despite the fact that the Mauritian government recognises that the real impetus of sustainable
and equitable growth lies with SMEs, their development has been a largely neglected area in
policy formulation and support (Ramsurrun and Darymple, 2002). In fact, there is a growing
argument to suggest incongruence in the national strategies of the government, the roles of
FDI and their relationships in promoting local entrepreneurship and development amongst
SMEs. Having said so, the government is determined and has made various efforts to increase
productivity in public as well as private sectors. But still, there are many discrepancies in the
rate of progress achieved in each sector. In the main, the civil service is bloated with
administrative bottlenecks in issuing licences and permits relating to foreign investments or
supporting small businesses in new ventures.
Empirically, Sannassee and Pearce (2002a, p.19) report that macro economic factors that were
the primary drivers of foreign investments into the country are now insufficient conditions for
sustained growth and are easily duplicated by competitors. In their opinion, sustainable
development initiatives should look beyond the establishment or protected phase of foreign
operations of MNEs. They should focus on ways of generating indigenous creative and
entrepreneurial capabilities to further embed MNE activity into the local context, if not
encourage the emergence of domestic multinationals. Furthermore, World Bank (2001)
analyses of the country further explain the inherent problems related to inefficient
management practices. For instance, there is lack of awareness on productivity and
competitiveness issues among SMEs. They have limited capability to improve technological
application (see also Sannassee and Pearce, 2002b), and local private sector delivery of
productivity and support services is non-existent.
The next section outlines a conceptual framework that can provide insights to address the
problems highlighted above.
8
4. Conceptualisation and propositions for research: examining entrepreneurial
dynamism in the Mauritian context
Despite the centrality of the relationship between FDI and economic development in
developing economies, there is no systematic theory or empirical work addressing the
sustained impact of multinational activities on local entrepreneurship and SME development
(Dunning and Narula, 1997; Wells, 1998; Caves, 1996, 2000). More specifically, these
authors argue for the following gaps in the literature:
Caves (1996, 2000) notes that studies relating to FDI to date have identified various
channels for spillovers (‘transfers of knowledge that result in productivity increases’,
2000, p. 1) from multinational activity to local host enterprises. Indeed, empirical
quantitative analyses have demonstrated positive effects on the productivity of local
firms that compete and supply them. However, there is little evidence on the factors that
determine the use of knowledge stocks and their absorption and entrepreneurial
deployment in micro level firms in developing countries.
Wells (1998) makes a more or less similar assertion that although there is an abundance
of work that contributes to understanding the impact of FDI on developing economies,
‘none of these answer the question of net impact, even if the criteria are solely
economic; and they almost completely fail to address the issue of net impact using
broader criteria that prevail in practice’ (p. 103). He further suggests that such works do
not contribute to the tasks of managers, whether those managers are government
officials or business executives and entrepreneurs. Indeed, such analyses undertaken by
economists do not clarify adequately the firms and institutions involved, and the
managerial, behavioural and organisational practices that normally must be taken into
account by managers and entrepreneurs in developing countries.
Dunning and Narula (1997), Arzeni and Pellegrin (1997) and Hood and Young (2000)
explain that globalisation is seen to have a ubiquitous yet disparate impact in the case of
developing economies. These authors have also observed that these countries have
highly diverse and heterogeneous ways in dealing with the phenomenon. Overall, they
argue that globalisation has urged the development of unique strategies by governments
in the developing countries to respond to the changing needs and expectations of the
MNEs and the ways in which they approach to consolidate their local economies. In
particular, Arzeni and Pellegrin (p. 27) argue:
… large firms, now taking their lead from smaller ones, have embarked on a
process of re-organisation and decentralisation towards a flexible model of
production, with lean manufacturing processes, vertical disintegration and the
realisation of the value of local systems. Regions and cities have similarly come to
be regarded not as passive hosts relying purely on geographical coverage but as
active structures themselves capable of generating innovative processes … within
these local systems, competitors, customers, suppliers and specialised research and
training programmes concentrated in geographical area offer a propitious climate
for improvement and innovation … and the local environment has acquired an
9
important role, particularly in the support it brings to the creation and growth of
SMEs.
With specific reference to Mauritius, there is no literature concerning research on the
SME sector and the drivers of entrepreneurialism. Teal (1999) and Wignaraja (2002)
share this view. They assert that there is inadequate analysis and study of micro-
economic aspects of the Mauritian enterprise-level experience, and therefore limited
understanding of the dynamics of entrepreneurship and export performance.
Taking the above theoretical and practical issues into consideration, this paper proposes a
conceptual framework that attempts to explore the nature of spillovers from multinational
activities (mainly FDI), and their absorption and deployment by local SMEs in developing
countries, more specifically for Mauritius (Figure 1). In essence, the framework proposes to
understand the dynamism of entrepreneurship in examining how spillovers from MNE
activities are deployed, absorbed and affect entrepreneurial initiatives and business strategies
amongst SMEs in Mauritius.
Entrepreneurship is conceptualised as a combination of innovative, proactive, and risk-taking
behaviour undertaken by SMEs in order to exploit opportunities created by spillover effects.
Shane and Venkataraman (2000, p. 218) define the study of entrepreneurship as the
‘examination of how, by whom, and with what effects opportunities to create future goods
and services are discovered, evaluated, and exploited’. These authors emphasize that
entrepreneurship has two parts: (1) opportunities and (2) individuals who strive to take
advantage of them. The framework agrees with these observations and examines both
dimensions in studying SME activities.
But Shane and Venkataraman’s (2000) definition has been criticized for depicting
opportunities as being ‘objective phenomena’ that go beyond subjective recognition by people
influenced by their social and institutional context. The framework therefore incorporates two
contextual constructs, namely the ‘Role and Policies of the Mauritian Government’ and the
‘Social Capability of the Country’ to examine their influences on the process of
entrepreneurship in a local context. These are further explained below. Moreover, the concept
‘Entrepreneurial Dynamism’ is used here in a very broad sense to capture the adaptability and
flexibility of entrepreneurship in all its forms, domestic as well as international or adaptive vs.
opportunity vs. necessity
1
in the local context. In that respect, this study intends to move away
1
According to the Global Entrepreneurship Monitor (GEM), in the 20 countries surveyed in 2001, almost 150
million people are engaged in some form of entrepreneurial activity. GEM differentiates between ‘opportunity
entrepreneurship’ – growing business to take advantage of a unique market opportunity – and ‘necessity
entrepreneurship’ – the best option available. Sixty-three million people reported that they started their own
small businesses because there were no other choices for work. The GEM found that the prevalence rate for
necessity entrepreneurship was positively associated with economic growth, and can accordingly drive change at
a macroeconomic level in developing countries.
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11
from traditional macroeconomic analysis of the impact of globalisation and undertake a more
local, firm-level, in-depth approach in order to make a more grounded study of the research
propositions related to the framework outlined below.
Proposition 1: Spillovers from FDI inflows attract and enable local entrepreneurship in the
Mauritian context.
Apart from being a dominant source of external finance, the literature suggests that FDI
inflows are an important source of positive externalities for the local economy through
‘spillovers’. Lall (1995, p. 5) argues:
Transnational corporations are amongst the most powerful means available for
transferring modern technologies by developed countries and overcoming obstacles to
their utilisation. By virtue of their large internal markets for capital, skills and
technology and information, they face fewer market failures than local firms. In most
circumstances, therefore, there is no reason to restrict entry as their presence can only
benefit local productivity and competitiveness.
Along the same lines, Dunning and Narula (1997) and Singh (2001) also suggest that
developing countries should enhance the ability of their small firms to access and to utilise
effectively the stock of knowledge available from firms in economically and technologically
advanced countries. ‘Spillovers’ are, therefore, taken to capture the effects of FDI on local
Mauritian firms’ entrepreneurship and productivity. These encompass ‘the role and strategy of
the multinational firm’ in the developing country as well as the technological and knowledge
transfers undertaken in the process.
Proposition 2: At a micro level, SMEs in Mauritius are the main recipients of the spillovers
from MNE activities. These spillovers are entrepreneurially absorbed and deployed by the
SMEs in various idiosyncratic ways which tend to influence their overall strategy, learning
processes, human capital development and management practices.
Earlier discussions in this paper pointed to the significance of small businesses as the
backbone of the private sector in the developing world, including Mauritius (see, for example,
the websitehttp://www.bridges.org). In that respect, the importance of entrepreneurship in the
local economy cannot be underestimated. The crucial effects of spillovers from FDI on local
entrepreneurialism and SMEs’ activities should, therefore, be understood in order to frame an
effective and sustainable approach to support their growth and development. Furthermore,
referring to Figure 1, Arzeni and Pellegrin (1997) suggest that the changing imperatives and
nature of operations of small firms in developing countries signal that these firms should also
be studied in relation to their localised systems or formal or informal networks. These
networks could be clusters of firms specialised in various complimentary functions,
12
interacting and collaborating by pooling services, technology-diffusion and export promotion
amongst themselves, in order to enhance their flexibility and combat their isolation.
Therefore, in order to capture the absorption and deployment of spillovers in SMEs’
activities, this proposition attempts to examine the business strategies of the small firms in
Mauritius and their linkages with MNE activities. The proposition also seeks to explore the
effects on their processes of learning, adaptation and integration of technology and knowledge
that underpin their operations, and the impact on their human capital, particularly in terms of
skills development, sharing of knowledge and experience and development of managerial and
coordination skills.
Proposition 3: The Mauritian Government’s roles and policies towards FDI aim at facilitating
entrepreneurship and small firm development. This is achieved primarily by regulating the
processes that underpin the absorption and deployment of spillovers from multinational
activity.
The discussions in Sections 2 and 3 highlighted the marked significance and the redefinition
of the roles of the national governments of developing countries, as well as that of Mauritius,
in promoting and sustaining economic development. As Hood and Young (2000) highlight,
the roles and responsibilities of the State have already been transformed from an ownership
and control function to that of promoter and facilitating agent in the country’s development
process. There are demands on the State for more proactivity in enabling a strong national
environment as a place for multinational investment and international cooperation, thereby
supporting and promoting the private entrepreneurial process. In this respect, the main target
for the Government of Mauritius is to find an appropriate balance between governmental
regulation and free play of market forces. Indeed, there is no magic formula for this, but from
the government’s perspective, smart regulation is key. In fact, Singh (2001) supports this view
and argues that developing countries are only likely to benefit from FDI if it is integrated into
their national strategic and technological plans. Empirically, Agosin and Mayer (2000) have
concluded that the local economies prospered with investments in Asia where FDI was most
regulated, and slacked in Latin America where it was highly liberal. Overall, this means that
developing countries such as Mauritius need to regulate spillovers from FDI closely in order
to foster the promotion of local entrepreneurship and economic development and avoid
hindering it.
Proposition 4: Beyond economic and institutional factors, cultural and social variables come
into play and have a non-negligible impact on entrepreneurial dynamism in Mauritius.
Mauritius is renowned worldwide for its diaspora of multicultural and multiethnic
communities living together in social and cultural harmony. More interestingly, the local
population comprises races that some might view as incompatible. However, Chinese, Indians
(composing of Muslims, Hindus, and various other delimitation based on religion), Black
African and European cultures interact and socialise, and even conduct businesses, in a very
13
natural way. The prevalence of this multicultural attribute, therefore, does give reason to
believe that the influences on entrepreneurial dynamism in Mauritius go beyond pure
economics. This, in fact, is supported by the work of Taeube (2004) who examines the
relationships between the various cultures of India and forms of economic activities. He
recommends that the impact of the social system on economic development cannot be
discounted and it is important to study the relationship between the origin of successful
entrepreneurs and the society in which they live. He further adds that, in essence, all channels
that transmit different cultural values through social capital or ethnic networks into human
and even physical capital should be assessed. This is a plausible proposition that applies more
particularly to Mauritius, not only because it is multicultural, but also because the literature
suggests that entrepreneurship in the local economy of developing countries is highly
unorganised and informal, and is dominated by entrepreneurs who depend on investments
(human as well as financial) from friends and families to survive and grow. The premise of
entrepreneurial dynamism should therefore be considered in its integral societal context. The
framework uses the concept of ‘Social Capability’, put forward by Ambrovitz (1986), to refer
to the social and cultural infrastructure of a country and to incorporate the examination of
such issues into this study.
5. Concluding remarks on implications for policy and management
As illustrated in this paper, the ongoing pace of globalisation of developing countries has
rendered the question of survival in a highly dynamic and interdependent international
economy more challenging for developing countries. At present, this seems to be the very
question for Mauritius: ‘Can Mauritius reinvent itself as an international economy and
redefine the future of its economic success in view of the challenges of globalisation in the
twenty-first century?’ This paper brings to the fore a proposal to investigate the nature of
entrepreneurial dynamism as a basis of its future economic success. The study aims to
consider the impact and relationship of spillovers from MNE activity on local SME
entrepreneurship. It is argued that this issue is central not only to the sustainable economic
development of Mauritius but also many African economies. This is also a neglected area of
research assessing the local impact of globalisation. It has been minimally addressed by FDI-
oriented studies in economics, international business and entrepreneurship.
Methodologically, this study intends to adopt an in-depth qualitative approach to research and
analyse the underlying propositions in the context of Mauritius. It is also expected at this
stage that the potential of the findings of this research will be of relevance to both policy-
makers and managers of MNEs and SMEs.
From a policy perspective, as argued in the discussion of Propositions 3 and 4, the roles and
policies of the State have become very crucial in performing a balancing act between
regulation and free market forces. Referring to the conceptual framework, it is argued that
government roles and policies for local economies should consider the nature of spillovers
from multinational activities. These hold the potential to diffuse information knowledge on
production techniques and new technologies into local markets, possibly creating or
14
enhancing a continual process of innovation and entrepreneurship that neither the market nor
public authorities could have achieved alone. In other words, there are demands on national
governments of countries like Mauritius is to be more pragmatic in dealing with and
regulating MNE activities (Dunning and Narula, 1997; Dohlman and Halvorson-Quevedo,
1997). They have to take a systematic and integrated approach towards upgrading the
resource creation and usage through spillovers, and maintaining long-term competitiveness.
At a macro level, what seems to be necessary in policy-making is an enabling and favourable
environment for efficient resource allocation that will appeal to foreign investments and, at a
micro level, an environment that promotes entrepreneurship would allow SMEs to strengthen
their businesses and would encourage them to think globally in producing high quality
products as marketable in domestic as in international markets.
Hence for SMEs, the framework attempts to emphasise their roles and operations in a global
context by examining the relationship between their entrepreneurial and business activities
and the spillovers from MNE activities in their respective country (Proposition 2). SMEs in
developing countries are urged to take an international perspective on their strategies and
competitiveness in the light of the changing imperatives highlighted in Figure 1. The
changing scenes of the global context seem to promote a trend for flexible specialisation for
SMEs as their advantage lies in their inherent flexibility to adapt relatively easy to
international markets requirements. Managers of SMEs in developing countries like
Mauritius, therefore, need insights on how to use their firm-level abilities to promote an SME
culture of flexible specialisation in interacting and defining the interdependence with
multinationals or their local networks. Such insights enable them to have an important impact
on economic development, rural industrialisation and social integration. For managers of
MNEs or their foreign subsidiaries (proposition 1), insights from this study can guide their
international locational decisions or how multinationals’ strategies should respond to
government policies in developing countries (Wells, 1998).
In summary, there is universal acknowledgement of the significance of FDI as a dominant
source of external finance as well as its roles in the economic development in developing
countries. There is no doubt that these countries have the potential to learn and profit from the
experiences of the developed world. They can adopt and adapt best practices to their own
situation, but in the end, it is largely the entrepreneurial motivations and actions of people in
the developing countries themselves that will determine the pace at which they can benefit
from globalisation.
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