(Institute for Small Business & Entrepreneurship, 2006-11-02) Rosa, Peter; Kodithuwakku, Sarath; Balunywa, Waswa
The paper examines the relationship between the state of necessity and entrepreneurial
activity, through qualitative case studies from Uganda and Sri Lanka, and a survey of 1006
Ugandan adults. Questions are posed on the tenability of hypothesis that necessity is a primary
motive for business start-up in poor countries. The relationship between necessity and business
start-up, though significant, is in the opposite direction from that predicted by the “necessity
hypothesis”. Those with low incomes were much less likely to start a business, because they
often became “trapped” by having to work long hours for just enough income to survive.
Opportunistic diversification, however, flourished once resources improved. The results question
recent attempts to classify countries on the basis of distinctive forms of entrepreneurship based
on necessity and opportunity. Policy makers should be cautious in formulating policies based on
demarcating necessity and opportunity entrepreneurship.