Entrepreneurial Discovery in a Transitional Economy: China 1979-2009

In this paper I discuss two research issues emerging in the field of entrepreneurship research. On the one hand, some scholars in mature and market-based economies begin to pay attention to theory building in entrepreneurship research. On the other hand, empirical evidence of entrepreneurial activities has been increasingly observed and analysed in transition economies such as China. Previous research has mainly focused on institutional analysis of entrepreneurial phenomena with particular emphasis on institutional and cultural factors. Little attention, however, has been paid to the dynamics of institutions and culture, which are influenced by the process of entrepreneurial discovery. Adopting the Austrian theoretical perspective, I will analyse institutional reforms in relation to the emergence and development of entrepreneurial activities during China's transition from a centrally-planned to a market-based economy. Using mainly secondary data and findings from prior research I contend that we can achieve a better understanding of the market process in China in the past three decades through the lens of entrepreneurial discovery. In so doing we can overcome the deficiency inherent in the institutional analysis of entrepreneurship in China where environment-strategy-performance framework is adopted. Instead, I propose a framework of opportunity-resource-capability which places entrepreneurial cognition-motivation-action at the centre. By the very definition and nature of a transition economy, market process can hardly reach equilibrium state. Neither entrepreneurial actors nor institutional actors have the capacity or ability to acquire the necessary knowledge to equilibrate market process. It is the process of competition for scarce resources rather than profit maximisation that drives the rapid growth and development of the private sector in China, which in turn fulfilled the unanticipated result of privatisation. The proposed opportunity-resource-capability framework is complementary to, rather than replacement of, the environment-strategy-performance framework. Further, the framework increases the explanatory power of analysing the dynamics of both entrepreneurial and market processes. Institutions, both market and regulatory, are being developed and become mature during this dynamic process. After thirty years of economic reforms, market mechanisms in China are still underdeveloped. Ambiguity in the regulatory regime in relation to entrepreneurial behaviour and activities causes uncertainty in the business environment which can impede entrepreneurial growth and development. Yet, it is the dynamic process of entrepreneurial discovery that augments innovation and efficiency of entrepreneurial activities which will have impact on innovations of institutions and culture.