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Enterprise and Productivity: Harnessing Competitive Forces - TPRP 08/04

A framework for considering entrepreneurship

Observing firm dynamics and internationalisation provides some indications that New Zealand’s business environment is not performing perfectly. Combined with consideration of New Zealand’s overall productivity challenge, this makes a strong case that some aspects of the business environment are underperforming and holding New Zealand back from its potential productivity performance. However, this diagnosis cannot point to a specific cause of a problem in the business environment. Therefore, this section provides a framework for considering factors that are important for entrepreneurship in order to shed light on New Zealand’s performance.

Entrepreneurial skills, access to resources and a sound policy framework are fundamental for entrepreneurship

An entrepreneur is someone who has the personal skill set and vision to identify potential market opportunities and the willingness to bear risk. They require a personal skill set including some or all of the management, financial, business and communication skills to identify opportunities and succeed, depending on whether they are a one-person start up or part of a larger firm. They need access to the necessary resources to take advantage of that opportunity: access to capital, skilled labour, research resources and information. The entrepreneur chooses the mix of these factors of production to best suit the opportunity. These actions occur within a framework that can impose or help mitigate barriers to activity and provide incentives or disincentives for entrepreneurial actions. Finally, these conditions are true of entrepreneurship in all countries: however, New Zealand has a set of specific characteristics that may further affect the business environment that supports entrepreneurial activity such as domestic market size and New Zealand’s distance from large markets.

These elements of entrepreneurship are summarised in Figure 3 below. The remainder of this paper covers each of these in turn and draws out some policy considerations for each.

Figure 3: Elements of entrepreneurship
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