Editor in Chief:

Bong Jin Cho (Korea, E-mail: bjcho@kmu.ac.kr)

Associate Editors

Richard P. Bagozzi (U.S.A., E-mail: bagozzi@umichigan.edu) : Guest Editor

Hermina Burnett (Australia, E-mail: herminaburnett@gmail.com)

Sun Young Park (Korea, E-mail: sypark@konkuk.ac.kr)

JinHyo Joseph Yun (Korea, E-mail: jhyun@dgist.ac.kr)

Editorial Board:

Deepanwita Chattopadhyay (India, E-mail: deepanwita@ikpknowledgepark.com)

Check Teck Foo (Singapore, E-mail: ctfoo@suntzuartofwar.org)

Chih-Hung Hsieh (Taiwan, E-mail: john@saturn.yzu.edu.tw)

Rajendra Jagdale (India, E-mail: rajendra.jagdale@gmail.com)

R.M.P. Jawahar (India, E-mail: jawa_ts@yahoo.com)

Lynn Kahle (U.S.A., E-mail: LKahle@lcbmail.UOregon.edu)

Tomoyo Kazumi (Japan, E-mail: t-kazumi@isc.senshu-u.ac.jp )

William Walton Kirkley (New Zealand, E-mail: w.kirkley@massey.ac.nz)

Harald F.O. von Kortzfleisch (Germany, E-mail: harald.von.kortzfleisch@uni-koblenz.de)

Hyoung San Kye (Korea, E-mail: hskye@mokwon.ac.kr)

Abdul Aziz Ab Latif (Malaysia, E-mail: azizl@umk.edu.my)

Ki Seok Lee (Korea, E-mail: econklee@khu.ac.kr)

Zhan Li (China, E-mail: lizhan@withub.org)

Zhao Min (China, E-mail: zhaomin@afdc.org.cn)

Patricia Ordoñez de Pablos (Spain, E-mail: patriop@uniovi.es)

Hadi K Purwadaria (Indonesia, E-mail: tpphp@indo.net.id)

Aviv Shoham (Israel, E-mail: ashoham@research.haifa.ac.il)

Zhen Wang (China, E-mail: STIC@stn.sh.cn)

Richard White (New Zealand, E-mail: richard.white@nzte.govt.nz)

Tan Yigitcanlar (Australia, E-mail: tan.yigitcanlar@qut.edu.au )

Benjamin J.C. Yuan (Taiwan, E-mail: benjcyuan@gmail.com)

Yuli Zhang (China, E-mail: ylzhang@nankai.edu.cn)

mailto:bjcho@kmu.ac.krmailto:bagozzi@umichigan.edumailto:herminaburnett@gmail.commailto:sypark@konkuk.ac.krmailto:jhyun@dgist.ac.krmailto:deepanwita@ikpknowledgepark.commailto:ctfoo@suntzuartofwar.orgmailto:john@saturn.yzu.edu.twmailto:rajendra.jagdale@gmail.commailto:jawa_ts@yahoo.commailto:LKahle@lcbmail.UOregon.edumailto:t-kazumi@isc.senshu-u.ac.jpmailto:w.kirkley@massey.ac.nzmailto:harald.von.kortzfleisch@uni-koblenz.dehttp://mail2.daum.net/hanmail/mail/MailComposeFrame.daum?TO=hskye@mokwon.ac.krmailto:azizl@umk.edu.mymailto:econklee@khu.ac.krhttp://mail.kobia.or.kr/Mail/frmWriteMail.asp?too=lizhan@withub.orgmailto:zhaomin@afdc.org.cnmailto:patriop@uniovi.esmailto:tpphp@indo.net.idmailto:ashoham@research.haifa.ac.ilmailto:STIC@stn.sh.cnmailto:richard.white@nzte.govt.nzmailto:tan.yigitcanlar@qut.edu.aumailto:benjcyuan@gmail.commailto:ylzhang@nankai.edu.cn

ISSN 2071 - 1395

Asian Association of Business Incubation

Copyrightⓒ2013 by AABI, All Rights Reserved

CONGRATULATORY MESSAGE

As a outgoing President of Asian Association of Business Incubation, I am grately

indebted for APJIE for providing me this honour of writing this congratulatory message. No other

Business Incubation Association has a Journal focusing on Research on Innovation and

Entrepreneurship in the world. As far as I know, no other association is even planning one in the

near future also. So APJIE will be proud medallion on the vest of AABI for a long time to come.

Besides bringing in this symbolic and ornamental value of preparedness and pro-activeness for

AABI, the real contribution of APJIE surges ahead as a great theoretical vision provider for the

Incubator community across the world. That I think is a very vital contribution for business

incubation development.

A pioneering research journal establishment and management can be hugely challenging.

Not every endeavour in this direction can be successful. It is heartening to see that APJIE has not

only been successful but also has been able to improve the quality continuously. This requires

special congratulations for the team and the Chief Editor. Bravo and Hats off the Editorial Team.

The Management besides high quality editorship has been able to bring sponsorship from

National Association like ISBA, KOBIA, NINA etc. That is a great synergy build up for

incubation and my sincere congratulations for the Chief Editor and the management team and

special congratulation to all the sponsor without whom this issue would not have seen the light of

the day. All this labour is to bring changes in real life through improved skills for business

incubation community. So the readers also deserve an advance congratulation since this issue will

sure to help them to hone their skills.

R.M.P. Jawahar.

President

Asian Association of Business Incubation

CONGRATULATORY MESSAGE

I feel very pleased to publish the Asia Pacific Journal of Innovation and Entrepreneurship

(APJIE) Vol7, No3. As you know, the depression of the global economy has continued from low

growth to stagnation for years. It is because, I think, global leading businesses feel that there are

great risks in developing new markets and there is also a limitation in meeting the rapidly

changing consumers' trends.

The Government has tried to get over these economic situations by establishing various

supporting policies and new plans. But I think the technology foundation is a more obvious

solution than any other plan. Otherwise, though a successful foundation can create new jobs and

lead to virtuous cycles in an economy, an unsuccessful foundation can incredibly affect the

community as well as individuals. So recently the entrepreneurship education has become a new

issue, which can create social friendly atmospheres for anyone to start a business and reduce risks

in the business.

The Korean Government has clarified the strong will in the entrepreneurship education by

announcing "The 5-year Plan in Entrepreneurship Education", lead by the Ministry of Education,

the Ministry of Science, ICT and Future Planning and Small and Medium Business

Administration. Like these, the true meaning of the entrepreneurship education is realized not by

the foundation itself but by the education which creates correct understanding in business and

develops abilities of making good business from novel ideas in life.

I hope APJIE will play a key role in the successful technology foundation by producing the

analyses of rapidly changing business surroundings and counter plans. And I must congratulate

Mr. Young-sik Kim on your being elected as President of AABI at the 19th AABI Assembly and

Conference held in Shanghai, China and also express my deepest appreciation to Mr. R.M.P. for

your hard-work and efforts to the development of AABI.

Once again I am expressing my deepest appreciation to the editor-in-chief, Professor

Bong-jin Cho and Dr. Benjamin Yuan for your contribution and dedication for the AABI.

Thank you.

Il-Shik, Shin

Chairman

Korea Business Incubation Association

CONGRATULATORY MESSAGE

Dear Friends:

It has now been seven years since the Asian Association of Business Incubation (AABI)

published the inaugural edition of "Asia Pacific Journal of Innovation and Entrepreneurship.‖ In

late December of 2007, while I was still the president & CEO of the National Business Incubation

Association, I wrote to you with my congratulations for your achievement. Since then, APJIE has

introduced a large, international audience to critical research and practical findings on innovation,

entrepreneurship and related topics. The journal is of interest to all individuals who study

company formation, work with student entrepreneurs, or are involved day-to-day in building

programs and tools to assist entrepreneurs directly—thus helping them to create community

wealth and accomplish their personal dreams.

Several years after the inaugural edition, I retired from my post at NBIA when that

organization represented nearly 2,000 members in 67 nations; it has since continued to grow but

to this day shares AABI‘s devotion to entrepreneurs and to the incubators that support them.

Today, as NBIA President Emerita, I am honored to congratulate you again now that that you

have reached an outstanding milestone with the current completion of APJIE Volume 7 and

upcoming publication of APJIE Volume 8 in 2014.

Many years of diligent effort of AABI members and others have contributed to the success

of this professional, refereed journal. In particular, I wish to note the dedication of Bong Jin Cho,

editor-in-chief, and recognize APJIE‘s associate editors, outstanding editorial board and

contributors. I would also like to recognize the distinguished and inspiring work of outgoing

AABI President R.M.P. Jawahar for his many years of service to the association and the

worldwide business incubation community, and to congratulate new AABI President Yeung Shik

Kim, of Kumoh National Institute of Technology (KIT), who has served two years as AABI Vice

President.

It is obvious that the journal itself and AABI have grown and matured, creating a strong

bond of support among Asian, Asia Pacific and Oceania nations and individuals, collectively

representing 18 nations and regions.

APJIE has fostered entrepreneurship and international friendships and has contributed to

insights helpful to practitioners and policy makers throughout the world. I, and your other friends

at NBIA and elsewhere in the entrepreneur support community, look forward to your future

continued successes.

Sincerely,.

Dinah Adkins

NBIA President Emerita

71

7

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93

CONTENTS

Introduction

Editor in Chief

A Study on the Process Innovation of Public Facility Maintenance as a

Social Infrastructure: The Case of Seoul Metropolitan Rapid Transit

Byoung-sun Kim, Young-whan “Nick” Lee, and Sun-young Park

Entrepreneurial Activity and Economic Growth: Learning from

Indonesian Broiler Farmers

Burhanuddin, Harianto, Rita Nurmalina, and Rachmat Pambudy

Challenges in Managing Incubation of Innovation in Biotechnology

Sector in India

Manisha Acharya

How Do Individual Angels, Angel Syndicates and Corporate Angels Do

Due Diligence of Investment Proposals?

Tryambaka Mahapatra and Sanjaya Satapathy

Study of an Agent-Based Model of Imagination and Development (I&D)

for Innovation in the Creative Economy

Dong Kyu Won, Jong Yeon Lim, and Sun Hee Yoo

Call for Papers

1

5

53

113

Volume 7, No.3, 2013 1

INTRODUCTION

Bong Jin Cho, Ph. D., Editor in Chief

On March 27th

, 2014, at the Hass School of Business, at the University of California,

Berkeley, U.S.A., The Economist magazine will hold its fifth annual Innovation Forum, where

technologists, futurists, and C-suite executives will explore truly transformative innovations that

have the potential of changing how we live and work. This conference will aim to answer the

ultimate question: Are we thinking big enough and how do we get there? Additional questions

that will be addressed are: 1) Is innovation big enough in America and creating the economic

opportunities this country needs? 2) How has the state of the global economy impacted

companies‘ ability to dream and act big? 3) Is innovation big enough at your company to create

the profits you need? 4) Are we focusing on applications and software to the detriment of

revolutionary new products? The Innovation Forum will also seek to address the questions of, 1)

―What is ‗big‘? Big is the printing press, steel, antibiotics and transistors.‖ 2) What will the next

‗big‘ be? That‘s what investors are asking and companies are brainstorming.

These are the innovation and entrepreneurship questions, answers and situations that are

vividly illustrated throughout the pages of every issue of the APJIE. Consequently, every issue of

the APJIE is similar to that annual Innovation Forums of The Economist magazine. However,

unlike the said Forum, the APJIE‘s stimulating and interacting discussions and debates are not

only for technologist, futurist, C-level and senior executives responsible for innovation,

information, technology, strategy, and marketing who are charged with driving innovation and

new product development—across industries and sectors. The APJIE goes beyond the micro

business focus into a more macro realm of academia, the non-profit sector, governments, and the

Asian region.

Consequently, as noted above, this issue of the APJIE Volume 7, No. 3 presents several

papers that address innovation from an Asian perspective to a wide global audience.

The first paper is ―A Study on the Process Innovation of Public Facility Maintenance as

a social Infrastructure: The Case of Seoul Metropolitan Rapid Transit.‖ The authors

made research on the process innovation of public facility maintenance as a social

infrastructure for the case of Seoul Metropolitan Rapid Transit (SMRT) escalators. The authors

took the seven independent variables of Escalator Operation Characteristics (EOC)

Asia Pacific Journal of INNOVATION AND ENTREPRENEURSHIP 2

including operation stories (number of floors), passengers getting-on and-off, operation age,

station types, product types, and operation lines. The dependent variable is Escalator

Maintenance Operations (EMO) including Number of Critical Failure and Repair Cost of Critical

Failures (EMC). The researchers collected Data for Escalator Maintenance published in 2011

by escalator management division in SMRT to take a multiple regression analysis to check

if number of maintenance operations and cost of operation were correlated respectively to the

independent variables of the Escalator Operation Characteristics (EOC). The purpose of the

research is to suggest a Budget Optimization Strategy by identifying the relationships between the

EMO and EOC.

According to the research results, as the operation age increased by years the number of

critical failures are also increased by 0.1476 (p

Volume 7, No.3, 2013 3

variable of production (DP) were reflected by ownership business (λ=0.0.39), controlling cost

(λ=0.43), and production factor (λ= -0.40). The latent variables of competitiveness (DS) were also

reflected by the internet link (λ=0.55), corporate culture (λ=0.57), and new business formation

(λ=0.57). The latent variables of risk (PR) were reflected by production risk taking (λ=0.74), and

investment risk taking (λ=0.51). The latent variables of labor (TK) were reflected by the amount

of labor (λ=0.50), motivation (λ=0.43), and effectiveness of recruitment (λ=0.41) while the latent

variables of government policies (KP) were reflected by technical assistance (λ=0.60), research

and technology (λ=0.66), and copyright protection (λ=0.63). Moreover economic growth reflected

by the business growth (λ=0.48), and level of income (λ=0.39). Economic growth is explained by

the entrepreneurial activities (λ=0.72), whereas the entrepreneurial activities are reflected by

innovation (β=0.98), risk (β=0.90), competitiveness (β=0-98), risk (β=-0.30), labor (β=0.93),

government policies (β=0.98), and basic entrepreneurial activities (λ=-0.040). Production does not

directly explain the entrepreneurial activities, however, it is explained through innovation

(β=0.81), risk (β=0.13) and labor (β=0.35).

The third paper is ―Challenges in Managing Incubation in Biotechnology Sector in India.‖

This paper discusses the issues in R & D, challenges of intellectual property (IP), and the matters

of long staying at the incubator including the challenges of fund raising and marketing skills of

the Biotech start-ups. The author also discuss over the issue of scalability of Biotechnology

enterprises. The author assumes that Bio-tech start-ups have to be concerned about the following

five questions before they start businesses. 1) Is the product under development commercially

viable? 2) Is the company‘s intellectual property (IP) defensible and other patents cannot block

the path to commercialization? 3) Can your business model generate significant profits? 4) Is your

target market good and large enough? 5) Does the company have the skills to implement the

business plan properly?

This paper is focused on the discussions over the challenges in managing incubation of

innovation in Bio-technology incubators. The author, based on his experiences in the field,

suggests following five challenges, which are the key issues of the Bio-tech incubation

management. 1) R&D is challenging and costly, therefore it is difficult to find balance between

cutting-edge science and good commercialization opportunities. 2) It is not easy to protect the

intellectual property (IP) from the IP copiers. 3) It is also a challenge to raise enough fund for the

Bio-tech company as it usually need large amount of money in long time gestation period in

uncertain market condition. 4) It is also a big challenge that Bio-tech start-ups need longer

gestation period in business incubators while the R&D life cycle has a fast technology

obsolescence rate. 5) There are big challenges in business development and strategic partnerships

including, licensing technology, full collaboration on R&D and commercialization, co-marketing,

Asia Pacific Journal of INNOVATION AND ENTREPRENEURSHIP 4

identifying right time to enter the partnership, identifying the right partner with successful

negotiation, and balancing collaboration with control. The author also added the challenges in

sales and marketing and commercial manufacturing.

The fourth paper is ―How Do Individual Angels, Angel Syndicates and Corporate

Angels Do Due Diligence of Investment Proposals?‖ The authors explore and discuss how the

three types of angels, individual, angel syndicates, and corporate angels do due diligence of

investment proposals. The authors collected primary data from the angels by conducting

interviews with 19 angel investors of different categories such as 10 individuals, 6 syndicates and

3 corporate angels. Each interview lasted for two hours or even more to finish the interview.

Among them 250 individual angels, 10-12 corporate angels and 15 syndicates angels‘ responses

were analyzed in the research. The data were audio taped, transcribed verbatim, and the resulting

qualitative data were analyzed using NVivo 7 for qualitative analysis.

The specific research question was ―How do individual (syndicates, corporate) angels do

due diligence of investment proposals?‖ The respondents‘ answers were tabulated in the

suggested format of a table for readers‘ convenience. For the individual angels, four respondents

noted that appreciation of the entrepreneurs and management team and financial or market share

analysis for the important actions in due diligence of the investors. Two of the interviewees have

mentioned evaluation of business plan and business idea, independent reference checks about the

entrepreneur and company and gut feeling they take in the due diligence process. For the angel

syndicates, the respondents mentioned assessing market mostly as the important due diligence

process, following verification of projections, ability of management team, checking due

diligence checklists, assessing the product, referring to experts for verification, and evaluation of

IP. The nature of due diligence reported turned out to be more professional, systematic and

rigorous for the corporate angels. The respondents of the corporate angels reported financials in

business plan, independent references, management team, technology, and familiarity with the

investee business were noted as well as issue of term sheet, due diligence file, contract with

suppliers and customers, warrantees given by the owner, trust on entrepreneur, talking to

employees in the business, and checking of management accounts.

The fifth and the last paper is ―Study of an Agent-Based Model of Imagination and

Development (I&D) for Innovation in the Creative Economy.‖ The purpose of this research is to

simulate and illustrate several characteristics of generating collective intelligence. The authors set

up two hypotheses that (1) the greater the degree of participation is limited in evaluation (2) the

higher the degree of heterogeneity in the ideas of a group, the greater the generation of ideas and

the greater the emergence of collective intelligence based on the literature review. The research

Volume 7, No.3, 2013 5

framework has been established to analyze innovation diffusion in society and innovation

adoption at the individual level based on the Roger‘s theory of innovation diffusion. The five

characteristics of relative advantage, compatibility, trial ability, observability, and complexity,

used to recognize innovation are evaluated to determine the most important factors that can

explain about 50 percent of the diffusion rate of innovation. In this model, the authors took the

steps of the five-part value chain of introduction, evaluation, fusion, selection and disappearance.

The authors also took the sensitivity analysis in accordance with the strength of

participants, the intensity of competitions, and the degree of heterogeneity of idea. It is found, in

this study, that (1) the more the degree of participation was limited in evaluation, (2) the higher

the competition among ideas, and (3) the higher the degree of heterogeneity in the idea group, the

greater the generation of ideas and the greater the emergence of collective intelligence. The

authors introduced ―Creative Economic Town‖ (http://www.creativekorea.or.kr), to realize the

benefits of a creative economy, launched by Korean Government, which is a ―platform for

exchanges and cooperation for imagination and development (I&D) recently.

Finally, the APJIE Desk is always grateful to the authors of all seven manuscripts

submitted from three different countries. The authors of the final five papers selected via peer

group review process all deserve our hearty appreciation as they patiently persevered with

modification requests through the rigorous review process. The APJIE Desk, more than any

others, however, gives our hearty thanks and respect to the global readers of the APJIE, as

without them there is no reason to publish the APJIE Volumes. We are very happy to invite a new

editorial board member from Queensland University of Technology, a professor of urban

planning and development, Tan Yigitcanlar. I am, as the editor in Chief, always grateful to the

Korean SMBA (Administrator, Han Jungwha), KOBIA (President, Il Shik Shin, and President

Elect, Hyung San Kye), AABI (Outgoing President, R. M. P. Jawahar, President Elect, Yeung

Shik Kim, and Secretariat General, Yan Xiong) for their financial support and continued

encouragement for a better quality journal. My special thanks go to chairman, Lee, Hong Jang, the

financial coordinator to the APJIE, who generously sponsors the expenses for a new secretariat,

Jeong, Hyerun to APJIE Desk in addition to Son, Eun Sook, Secretariat General. APJIE Desk also

appreciates to the Indian STEPs and Business Incubators Association (ISBA), (President,

Deepanwita Chattopadhyay) for their special financial support for the APJIE‘s publication for the

years of 2013 through 2014.

Thank you!

http://www.creativekorea.or.kr/

Asia Pacific Journal of INNOVATION AND ENTREPRENEURSHIP 6

Volume 7, No.3, 2013 7

A Study on the Process Innovation of Public Facility

Maintenance as a Social Infrastructure:

The Case of Seoul Metropolitan Rapid Transit

Byoung-sun Kim, Young-whan “Nick” Lee

, and Sun-young Park

Abstract

Of a total of 24,156 escalators that were in operation in Korea as of December 2011, 902

units (or 3.73 percent) of them were installed in subway stations. Escalators as a public use

facility in social infrastructure offer an important convenience to passengers. Recently the

perception to public facility maintenance has been shifted from facility management to asset

management. This is because if public use facilities are maintained in the perspective of asset

management taking preventive measures against aging and malfunctioning, their life expectancy

may become longer and the budget related to the maintenance can be optimized. In this study, the

researchers studied subway escalators as social infrastructure in the perspective of asset

management, and proposed to use a model that can optimize the budget spending with reasonable

maintenance in terms of process innovation.

Key words: Social Infrastructure, Escalator, Maintenance, Process Innovation, Budget

Optimization.

Ph. D., Candidate, Global Technology Innovation Management Research Center, Konkuk University, E-mail:

subway5678@naver.com Assistant Professor, School of International Studies, Konkuk University, E-mail: nicklee@konkuk.ac.kr Corresponding Author, Professor, Miller MOT School, Konkuk University, E-mail: sunpark.korea@gmail.com

mailto:subway5678@naver.commailto:nicklee@konkuk.ac.krmailto:sunpark.korea@gmail.com

Asia Pacific Journal of INNOVATION AND ENTREPRENEURSHIP 8

1. Introduction

In Korean law, social infrastructure is defined to be ―infrastructure facilities where various

production activities are based, the utilities of such are increased, the efficiency of public use is

added, or convenience in people‘s life is increased (Act on Private Participation in

Infrastructure).‖ Social infrastructure includes roads, railroads, airlines, dams, water supply and

sewer systems. As considered as an important public asset, it is a subject of operation that a

government must set target maintenance measures to make sure the activities of the regional and

the national economy operate seamlessly and offer services to meet public expectations. It has

been increasing and is continued to increase in numbers following population increase, economic

growth, and urban concentrations. Also demands for new services and level-of-service (LOS)

requirements in social infrastructure facilities have continued to grow. Due to limited budgets, the

lack of systematic service management, and the ever-continuing process of facility aging,

however, supplies failed to meet the level of demand. There is a necessity for efficient and

economic facility management and additional investments are increasing on large measures

compared to the past (Chae et al., 2009). In response to these, found in the area of public facility

maintenance, process innovation defined in Oslo Manual is required to be applied as it states: An

innovation is the implementation of a new or significantly improved product (good or service), or

process, a new marketing method, or a new organizational method in business practices,

workplace organization or external relations.

2. Theoretical Background and Previous Research

According to ―National Finance Management Plan – Social Overhead Capital (SOC) in the

Section of Transportation from year 2013 to 2017‖ of Korea as shown in [Table 1] ―Trend of

Transportation Distance per Passenger by Transportation Types,‖ the sharing ratio of railroads

and subways has gradually increased from 24.3 percent in 2004 to 25.9 percent in 2011. Its

sharing ratio to the total distance is the only one increased to 106.6 percent (National Finance

Management Plan, 2012). The more intensified economic growth and urban concentrations are,

the larger increase is expected.

Volume 7, No.3, 2013 9

Table 1 Trend of Transportation Distance per Passenger by Transportation Types

(in Thousands and %)

Types 2004(A) 2006 2008 2009 2010 2011(B) B/A

Public

Roads 9,169,559 9,108,648 9,798,410 9,588,133 9,646,404 9,907,168 108.0

Railways,

Subways 2,954,634 3,049,106 3,160,849 3,202,665 3,334,012 3,477,379 117.7

Sea 10,648 11,574 14,162 14,868 14,312 14,266 134.0

Air 18,893 17,181 16,990 18,061 20,216 20,981 111.1

Total 12,153,734 12,186,509 12,990,411 12,823,727 13,014,944 13,319,794 110.4

Sharing Ratio (%)

Public

Roads 75.4 74.7 75.4 74.8 74.1 73.8 97.9

Railways,

Subways 24.3 25.1 24.3 25.0 25.6 25.9 106.6

Sea 0.1 0.1 0.1 0.1 0.1 0.1 100.0

Air 0.2 0.1 0.1 0.1 0.2 0.2 100.0

As shown in [Table 2] ―SOC investment Ratio from the year 2004 to 2012,‖ the ratio of

SOC investment to GDP is in the range from the minimum at 3.19 percent (2012) to the

maximum at 4.20 percent (2009). The accrued investment in this period reaches 316.6 trillion

Korean Won (KRW) (National Finance Management Plan, 2012). As the SOC investment

continues to increase, the paradigm of understanding about social infrastructure facilities is to be

shifted to asset management.

Table 2 SOC Investment Ratio from Year 2004 to 2012

Year SOC(A) GDP(B) Ratio(A/B) Year SOC(A) GDP(B) Ratio(A/B)

2004 28.4 823.3 3.41 2009 41.2 981.6 4.20

2005 31.5 865.2 3.64 2010 41.7 1,043.7 4.00

2006 32.3 910.0 3.55 2011 39.7 1,081.6 3.67

2007 31.7 956.5 3.32 2012 35.3 1,104.2 3.19

2008 34.5 978.5 3.53

Remarks:

1) SOC investment and GDP are at 2005 constant prices. 2) SOC = Central government budgets + Regional government budget + The investments of

government -owned corporations + Private investment

Asia Pacific Journal of INNOVATION AND ENTREPRENEURSHIP 10

2.1 Seoul Metropolitan Rapid Transit (SMRT) Escalators

An escalator, classified as a type of elevator, is defined to be stairways that move. Until the

United Patent Office specified its meaning to be moving stairs and use it as a public English word,

it used to specify one of the registered products of OTIS Elevator Co. As of Dec. 31, 2012, the

escalators in operation in Korea were totaled at 25,783 units. As rapid economic growth tends to

create an environment in which the numbers of skyscrapers arise, the buildings with escalators

installed sprouted ten times in comparison to those in 1995. The speed of escalator installation

growth is increasing each year.

Seoul City announced the vision of ―Low Carbon, Green Growth in Seoul by 2030‖ in

2009. According to the roadmap, it plans to invest 13 trillion plus KRW. In particular, it plans to

increase the sharing ratio of public transport to 75 percent by the year 2030, in which the sharing

ratio of subway is merely 35.2 percent in the year 2012 (Seoul Metropolitan Rapid Transit 2012

Transportation Plan, 2012), it is expected to keep expanding the subway lines and the services.

Since escalators represent the means of passenger convenience in subway stations, the installation

of it appears to be faster than ever before. According to the related law in Korea, escalators may

operate at least fifteen years unless reasons are found not to (The Law of Lifting Facility and

Safety Management, Chapter 13 Verse 2, 2013). Of the total number of them installed in Korea,

more than 3.73 percent (or 902 units) are installed and being maintained in the subway stations

under the management of Seoul Metropolitan Rapid Transit (SMRT, hereafter). Their average age

is 10.14 years old. Many have reached over fifteen years from their installation. (As of Dec. 2012,

they were 158 units or 17.5 percent) A large amount of maintenance cost is being incurred: the

repair expense was 1.5 billion KRW during the year 2011.

2.2 Management Status of SMRT Escalators

Founded in 1994, SMRT transport a daily average of 2,463,000 passengers (or 24.6

percent) according to a report from Seoul City (Department of transportation policy Seoul, 2011).

It runs four types of elevation vehicles, elevators, escalators, moving walks, and wheelchair lifts.

It operates the Second subway lines of the City. Since it is built under the First subway line, the

slope distance from a platform to its station canopy is relatively long. Therefore, escalators

provide important convenience for the passengers. According to a report from the Escalator

Management Division of SMRT in 2012, the ratio of escalators to the total number of elevation

vehicles is about 62.35 percent.

Volume 7, No.3, 2013 11

2.3 Budget Optimization as a Process Innovation of Social Infrastructure

Oslo Manual defines what innovation is and then categorizes into four distinct types,

product, process, marketing, and organizational (Oslo Manual, 2005). As for the study related

with the subjects of innovations, Lee and his colleagues asserted that process innovations among

all types of technical innovations in particular improves established processes by choosing new

cost-saving processes, by reducing the number of processes without having quality loss, or by

taking a new technology for quality improvement under the same processes (Lee et al., 2008).

They also stated, even if process innovations may focus to create profits which are the ultimate

economic goal, the methods to achieve them tend to maximize the productivity and therefore the

profits: this rationalizes the processes, saves the materials and the labor costs, and produces the

intended design quality in a short period of time. Therefore, maintenance management qualifies to

be a subject of process innovations. Although social infrastructure, with limited lifespan such as

SMRT escalators which are the focus of the study, is a good subject of process innovations, little

innovation effort has taken place in this area. Therefore, as the number of escalator installations

increases and reasonable maintenance plans become important, innovation researches to optimize

the budget for the social infrastructure are necessary.

In regards to this, a study on organizational reform method by Myung Chae and his

colleagues found that facility maintenance for social infrastructure facilities is shifting its

paradigm to asset management (Chae et al., 2009). In the area of escalator maintenance, Chung

studied the relationship between escalator maintenance and service quality (Chung, 2007).

However, there is a dearth of studies on innovations in the area of escalator maintenance.

Kim attempted to review the theories of maintenance to find a way to efficiently manage

electric facilities (Kim, 1995). It is also difficult to find empirical analysis studies based on what

are being practiced in the field. The researchers of this study believe that this kind of study on

escalator maintenance as social infrastructure from the perspective of asset management will

significantly contribute to the field of process innovations.

2.4 Previous Research on Public Facility Maintenance as Social Infrastructure

Previous research on public facility maintenance as social infrastructure primarily has been

studied from the perspectives of asset management, and management efficiencies.

Asia Pacific Journal of INNOVATION AND ENTREPRENEURSHIP 12

Tark showed various innovation types from the side of business management by studying

its product innovation management (Tark, 2001). Frankelius defined innovation as something

original, new, and important - in whatever field - that breaks in to (or obtains a foothold in) a

market or society (Frankelius, 2009).

Han and his colleagues proposed a decision making model that prioritizes to bring the

budget execution to a potential optimum (Han et al., 2008). To do so, they ran a life cycle cost

analysis of the existing maintenance system, computed the required cost accordingly, drew

maintenance strategies with limited budgets, and then built a maintenance program applying them.

Finally, they factored in vehicle loads to complete the proposed model. Chung and his colleagues

proposed a decision making model that prioritizes to bring the budget execution to a potential

optimum for efficient management of underground social infrastructure, i.e. sewer infrastructure

based on future demand forecasting (Chung et al., 2005).

Choi (2010) asserted that asset management needs to be applied beyond the existing

facility management systems because it can lengthen the life span of social infrastructure facilities

to save the budget expenses. Chung and his colleagues argued that dynamic planning as an

optimization methodology can be practically applied to each different phase in the lifecycle of

sewer system management because it can find the most efficient and suitable maintenance method

for each phase (Chung et al., 2005). Chae et al. (2009) asserted to use asset management process

by utilizing a balanced scorecard in their paper, ―Organizational Reform for the Successful

Implementation of Infrastructure Asset Management using Balanced Score Cards.‖ Na and Lim

analyzed the business architecture of facility management based on KTAM-40 (or Korea Total

Asset Management System-40), a system developed by the Korea Institute of Construction

Technology (KICT), and divided it into two categories; Information Technology Architecture

(ITA) and Enterprise Architecture (EA). They then divided the roles of CEO‘s and the directors‘

for each architecture category.

Jeong and his colleagues emphasized on the roles and the necessity of information systems

in public facility asset management (Jeong et al., 2005). Information systems can not only play a

role to help public facilities be effectively utilized but also provide scientific basis in setting

maintenance plans. To make it applicable in Korea, asset management system must be as follows:

First, since asset management must include facility maintenance for one of its functions,

the old legacy maintenance systems must be taken into consideration for seamless operation.

Volume 7, No.3, 2013 13

Second, many individuals and responsible departments are involved in facility

maintenance. Each department takes a different part in the management even of the same facilities.

This must be taken into consideration.

Third, departments responsible for public facility maintenance operate systems that are

specially developed for their own work requirements of the maintenance and the environments.

Therefore, an asset management system must consider to link to legacy systems.

Finally, since aged social infrastructure facilities have been increasing, the demand for

asset management has been growing to save budget expenses and to lengthen the life-spans of

public facilities.

Kim et al. (2010) verified the relationship between customer satisfactions and financial

or non-financial performances, to see the effect of the unique attributes of quality attributes to

business performance of small to medium venture businesses in lift maintenance. Kim et al.

(2010) also verified mutual causality in employees‘ perspective that provided the bases of quality

attributes in the lift maintenance industry.

3. Hypotheses and Research Model

3.1 Hypotheses

In trying to find a way to optimize the budget for maintenance facilities and related

expenses, the researchers studied the facility maintenance of escalators, a type of public facilities

managed by SMRT. The Escalator Operation Characteristics (EOC) consists of following

elements: Operation Stories, Passengers Getting-On-or-Off, Operation Age (in years), Station

Types (to see if it is used for transit or not), Product Types, and Operation Lines. The Escalator

Maintenance Operations (EMO) and Escalator Maintenance Costs (EMC) are identified as follow:

Number of Critical Failures1, Repair Cost of Critical Failures

2. To see that the Operation

Characteristics affect the Maintenance Operations and Costs, the hypotheses are derived as

follow:

Hypothesis 1: EOC affects the number of EMO.

Hypothesis 2: EOC affects the amount of EMC.

Asia Pacific Journal of INNOVATION AND ENTREPRENEURSHIP 14

3.2 Research Model

Operation Characteristics

Maintenance

Budget Optimization

Strategy

• Operation Stories

• Number of Critical Failures • Optimization of

Maintenance Expenses • Passengers Getting-On-

or-Off

• Repair Cost of Critical

Failures

• Operation Age

• Station Types

• Product Types

• Operation Lines

[Figure 1] Research Model

1) Operation Stories

Escalators provide convenience to passengers moving between floors. The higher the

number of floors are, the more the utilization is. Since subway escalators are particularly operated

in relatively poor conditions compared to others in general use, Operation Stories are included as

a factor that affects the number of Critical Failures and the Repair Cost of them.

2) Passengers Getting-On-or-Off

Subways are used by a large number of passengers as they are social infrastructure public

facilities and so do the escalators operated in their stations, which are considered as representative

means of convenience to passengers. Therefore, the average number of daily Passengers Getting-

On-or-Off are included as a factor.

3) Operation Age

In general, facilities get deteriorated as years pass by. After passing critical point of time,

the rate of deterioration tends to get accelerated. The escalators under the operation of SMRT are

not only the same as others in deterioration, but also get operated in relatively hostile environment

with a large number of passengers. From this, one may easily reason that deterioration could be

faster than others. Therefore, the Operation Age after the installation is chosen as an affecting

factor.

4) Station Types

In general, subway stations used for transit take a bigger number of passengers than others.

Volume 7, No.3, 2013 15

Therefore, since one may reason escalators in transit stations get bigger loads than others and

Station Types are chosen as an affecting factor.

5) Product Types

The escalators operated under SMRT may be grouped by the manufacturers and their

company sizes: 795 units or 88.14 percent are manufactured by the large corporations, and 107

units or 11.86 percent by the small to medium-size enterprises (SMEs). Product Types are

selected as a factor because it is assumed that large corporations may produce better quality

products than SMEs do.

6) Operation Lines

Subway lines operated by SMRT might affect the number of Critical Failures and the

Repair Cost of them. We selected Operation Lines to measure the difference.

4. Empirical Analysis

4.1 Data Collection and Analysis Methodology

The researchers referenced a data report, ―Data for Escalator Maintenance‖ published in

2011 by Escalator Management Division in SMRT (Data for Escalator Maintenance, 2011).

Through primary analysis, the total of 902 datasets in escalator maintenance (the Number of

Critical Failures, and the Repair Cost of Critical Failures) was used to first analyze the general

characteristics. The correlation analysis among variables was performed next. Lastly, a multiple

regression analysis was used to see if maintenance was affected by the operational characteristics

which were Operation Stories, Passengers Getting-On-or-Off, Operation Age, Station Types,

Product Types and Operation Lines. With this analysis, the researchers derived the optimization

strategy of the maintenance budgets.

4.2 Analysis Results

4.2.1 General Characteristics of Data

The result of elementary analysis for the general characteristics of the data used in this

research is shown in [Table 3]. SMRT experienced Critical Failures 1,499 times during 2011 and

the Repair Cost of the Critical Failures show the median value over 300 million KRW. Operation

Stories were 1.29 in average and Passengers Getting-On-or-Off was over 25,000 in daily average.

Asia Pacific Journal of INNOVATION AND ENTREPRENEURSHIP 16

The average Operation Age of escalators was 10.14 years. Considering the number of escalators,

the ones operated in non-transit stations were 564 units (60.5 percent), which were less than the

ones in transit stations, 356 units and 39.54 percent.

[Table 1] General Characteristics of Data

Subjects (Year

2011)

Escalators Subjects (Year 2011)

Escalators

Numbers % Numbers %

No. Data 902 Units 100 Transit

General 546 60.53

No. Critical

Failures 1,499 Times 100 Transit 356 39.47

Cost of Critical

Failures 3,119,938

KRW Median Product Types

Corp. 795 88.14

Operation

Stories 1.29 Average SMEs 107 11.86

Passengers

Getting-On-or-

Off 25,619 Daily Average

Operation

Lines

Line 5 265 29.38

Line 6 250 27.72

Operation Age 10.14 Years Average Line 7 325 36.03

Line 8 62 6.87

4.2.2 Correlation Analysis Result

The results of the correlation analysis number of Critical Failures, Repair Cost of Critical

Failures, Operation Stories, Passengers Getting-On-or-Off, Operation Age are shown in the [Table 4].

[Table 4] Correlation Analysis Result

No. Critical

Failures Repair Cost of

Critical Failures Operation

Stories Passengers Getting-

On-or-Off Operation

Age No. Critical

Failures 1.0000 Repair Cost of

Critical Failures 0.4927* 1.0000

Operation Stories 0.1387* 0.0524 1.0000

Passengers

Getting-On-or-Off -0.0581 0.0622 0.0420 1.0000

Operation Age 0.3376* 0.2083* 0.2937* -0.0657* 1.0000

Remark: 95% Confidence Level

Volume 7, No.3, 2013 17

4.2.3 Analysis Result of Factors Affecting Escalators Maintenance

The Operation Characteristics of Escalators under operation of SMRT affecting the

Number of Critical Failures and the Repair Cost of Critical Failures are show in [Table 5].

[Table 2] Analysis Result of Factors Affecting Escalator Maintenance

Variables

Model 1 : No. Critical

Failures

Model 2 : Repair Cost of

Critical Failures

Coef. t Coef. t

Independent

Operation Stories 0.1552 1.21 -292581.9 -1.07

Passengers

Getting-On-or-Off 5.65e-06 1.02 38.5 3.28

***

Operation Age, 0.1476 8.80***

216947.4 6.07***

Station Types -0.0356 -0.25 177366.1 0.60

Product Types -0.5391 -2.37**

-284518.7 -0.59

Operation

Lines

Line 6 0.2847 -3.87 -970022.9 -2.47**

Line 7 -0.6972 -2.48***

-1738991 -4.54***

Line 8 -0.7220 0.40**

-928991.3 -1.50

R² 0.1497 0.0718

Adj R² 0.1421 0.0634

Remarks:

1) *p< .1, **p< .05, *** p< .01

2) Dummy variables: Station Types, Product Types, Operation Lines

3) Omitted variables: Operation Lines (Line 5)

When Operation Age increased by a year, the Number of Critical Failures also increased

by 0.1476 (p < 0.01). Also when Passengers Getting-On-or-Off increased by a person, the Repair

Cost of Critical Failures also increased by 38.5 KRW (p < 0.01). Furthermore, when Operation

Age increased by a year, the repair cost increased by 216,947.4 KRW (p

Asia Pacific Journal of INNOVATION AND ENTREPRENEURSHIP 18

When it computers the budget for maintenance for the upcoming fiscal year, SMRT uses

the current fiscal year‘s budget as the base to which it adds the increase of the Consumer Price

Index plus Contingency Ratio, which is reserved for unexpected contingencies at about 10 percent

in general. The formula is as follow:

Upcoming Fiscal Year Budget = Current Fiscal Year Budget × (1 + Consumer Price

Index) × (1 + Contingency Ratio)

4.3.2. Optimization of Maintenance Budget by Applying Process Innovation

To optimize escalator maintenance budget by applying process innovation, Contingency

Ratio which is used in practice now, must be modified as follows:

Upcoming Fiscal Year Budget = Current Fiscal Year Budget × (1 + Consumer Price

Index) × (1 + Marginal Ratio of Critical Failures)

Where, Marginal Ratio of Critical Failures is the replacement of Contingency Ratio that

is applied now.

This is because the budget department empirically sets the Contingency ratio with no

reasonable foundation for the computation. Therefore, if the Contingency ratio can be presented

based on a reasonable foundation, it will contribute to optimize the maintenance budget of SMRT.

As found in Table 5, increases in Operation Age, the independent variable, affects both of the

Number of Critical Failures and the Repair Cost of Critical Failures, the dependent variables, to

increase. Also since mechanical machinery has a durable period, it is obvious that failures

increase as age increases. So do the Number of Critical Failures and the Repair Cost of Critical

Failures. Therefore, an ‗increase of the Number of Critical Failures following Operation Age‘

computed in Table 5 can be presented as the reasonable foundation of computation. Also, an

‗increase of the Number of Critical Failures following Operation Age‘ can be utilized as the

performance indicator of process innovation by comparing those with the ones of the previous

year.‘

5. Conclusion

5.1 Summary and Implications

Volume 7, No.3, 2013 19

The researchers performed empirical analysis to propose practical implications by applying

process innovation to escalator maintenance as a social infrastructure public facilities using ―Data

Related with Elevator Maintenance,‖ published by SMRT. The median value of the Repair Cost

of Critical Failures was 3 million KRW. 1.572 billion KRW was spent during the year 2011. The

cost of escalator maintenance is incrementally increasing. Therefore, the research for optimization

of the facility maintenance expenses is called for. In this research, the researchers employed

multi-regression analysis to investigate the strategies to optimize the maintenance budget in the

perspective of facility maintenance as process innovation. To do so, operation characteristic

variables, Operation Stories, Passengers Getting-On-or-Off, Operation Age, and Station Types (to

see the differences of transit and non-transit stations), Product Types, and Operation Lines, were

identified and the effect of maintenance on them were researched.

[Table 3] Hypotheses Verification Summary

Types Selection Selected Variables

Hypothesis 1 Partial Selection Operation Years, Product Types, Line 7, Line 8

Hypothesis 2 Partial Selection Passengers Getting-On-or-Off, Operation Years, Line 6, Line 7

The summary result of multi-regression analysis on how the independent variables affect

the Number of Critical Failures and the Repair Cost of Critical Failures is shown in Table 6. This

research focuses on finding a way to optimize the maintenance budget of public use facilities as

social infrastructure and suggests practical implication in terms of process innovation.

The researchers find that SMRT must change its Contingency Ratio, which is currently

used, to optimize its maintenance budget. As shown in Table 5, the finding, ‗increase ratio in the

Number of Critical Failures follows an increase in Operation Age,‘ could offer reasonable

foundation to replace the Contingency Ratio, and therefore, the researchers believe that process

innovation can make significant contributions to the areas of the budget optimization of facility

maintenance. Furthermore, the finding, ‗increase ratio in the Number of Critical Failures follows

an increase in Operation Age,‘ shows that it can be utilized as the performance indicator of

process innovation by comparing those with the ones of the previous year.

According to the Oslo Manual, process innovations are defined as the implementation of

―new or significantly improved techniques, equipment and software in ancillary support activities,

Asia Pacific Journal of INNOVATION AND ENTREPRENEURSHIP 20

such as purchasing, accounting, computing and maintenance.‖ This study makes contributions

from the perspective of process innovations as follows:

First, budget optimization for escalator maintenance as social infrastructure implies a

process innovation because it offers an improved technique ―in ancillary support activities, such

as purchasing, accounting, computing and maintenance‖ (Oslo Manual, 2005).

Second, from the methodology of asset management, the changes in the Number of

Critical Failures according to Operation Years can be measured and utilized as a performance

indicator. This would motivate asset managers actively searching for incorporating maintenance

as a means of asset management.

Somewhat surprisingly, at least in the case of all the Korean subway operators including

SMRT, the researchers learned that maintenance budgets of operating facilities have never been

computed and optimized in practice reflecting the characteristics of the variables affecting critical

failures and repair costs. They believe that this might be generalized and truthful for most of the

other public facility operators around the world. This study confirmed that the operation years

among the explanatory variables affect the number of critical failures and the related costs. The

researchers believe that maintenance budget optimization is a type of process innovation that can

be immediately applied in practice.

5.2 Limitations and Future Research

The researchers focused on the escalators operated within subways, a type of social

infrastructure. Many previous researches on subways have been primarily focused on marketing

or how real estate prices are affected by subway lines, and subway-related engineering. As little

research were found in the focus area, it is difficult to make a review of the papers addressing

issues in the field.

Also, this research was limited to introduce explanatory variables as it utilized secondary

data. On the other hand, it is believed that this research could make contributions to the business

and the people in the field because it took the actual data in the field such as the Number of

Critical Failures and the Repair Cost of them.

Volume 7, No.3, 2013 21

As for the future research, it is necessary to study institutions operating facilities as social

infrastructure from the perspective of asset management in trying to find factors affecting their

performance.

1 Critical Failure means a situation that the regular operation of an escalator is directly disturbed.

2 Cost of Major Failure means the cost involved to fix a Major Critical Failure.

Asia Pacific Journal of INNOVATION AND ENTREPRENEURSHIP 22

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Volume 7, No.3, 2013 25

Entrepreneurial Activity and Economic Growth:

Learning from Indonesian Broiler Farmers

Burhanuddin, Harianto

, Rita Nurmalina

, and Rachmat Pambudy

Abstract

Entrepreneurship is a key attribute of agricultural development as a leading economic

sector in Indonesia. The broiler businesses started in the '80s and the number of broiler's

population has since reached 2 billion, and this is presumably due to entrepreneurial activities,

such as high innovations in broiler farms. Therefore, this study is aimed at analyzing the

relationship between entrepreneurial activities of chicken broilers and economic growth at the

micro economic level. This study was conducted in Bogor, West Java, Indonesia since Bogor

district is the center for broiler production. Data were collected from 381 farmers by the

sampling “census” technique, and the data were analyzed by Structural Equation Modeling

(SEM) to find the relationship between the exogenous latent variables of entrepreneurial activities

and endogenous latent variables of economic growth at firm level of broiler farms. The result

showed that economic growth was explained by entrepreneurial activities (γ=0.72), whereas the

entrepreneurial activities were reflected by innovation (β=0.90), competitiveness (β=0.98), risk

(β=-0.30), labor (β=0.93), government policies (β=0.98), and basic entrepreneurial activities

(λ=-0.40). The production variable does not directly explain the entrepreneurial activities, but the

variable is correlated with the variables of innovation (β=0.81), risk (β=0.13), and labor

(β=0.35) in reflecting the activities. The government can accelerate its economic growth through

the growth of the number of broiler farmers as entrepreneurs by encouraging farm technology

and innovation, and by developing information technology.

Key words: entrepreneur, innovation, competitiveness, risk, government policy

Corresponding Author, Graduate Student, Study Program of Agriculture Economics, Department of Resource and

Environmental Economics, Faculty of Economics and Management, Bogor Agricultural University (IPB), Bogor, Indonesia, E-mail: burhanipb@gmail.com

Lecturers, Department of Agribusiness, Faculty of Economics and Management IPB, Indonesia

mailto:burhanipb@gmail.com

Asia Pacific Journal of INNOVATION AND ENTREPRENEURSHIP 26

1. Introduction

An entrepreneur is an aggressive catalyst in accelerating the economic growth because an

entrepreneur is an innovator and the driving force for development. Entrepreneurs are creators of

wealth through innovation, job creation, and distribution of wealth which depends on hard work

and risk taking (Bygrave & Zacharakis, 2010), indicating that entrepreneurship is closely

associated with economic growth.

Witt (2002) summarized the main hypothesis of Schumpeter's theory of economic

development that there are linkages between economic growth and entrepreneurship. Firstly, the

innovative entrepreneurial activities generate changing endogenous economic variables, which

combine new economic resources and form an economic organization. Secondly, the intensity of

the main prerequisites of innovation in economic development is a function of entrepreneurial

capacity. Thirdly, the company's willingness to innovate can positively face competitive growth in

the monopolistic market structure. Finally, the innovation will increase welfare as a means of

competition. Therefore, all of the hypotheses explained the close relationship between

entrepreneurial activities and economic growth.

Thus, a simple equation of the economic growth in Schumpter‘s model is formed by the

level of technology, labor, and capital. Dinopoulos and Sener (2007) divided the capital into

entrepreneurial capital and knowledge capital where both are correlated to the output. The capital

stock of manufacturing is estimated by investment, the amount of labor and researchers as well as

by the tendency of people when starting new businesses, and it is estimated from the number of

new businesses relative to the total population. This function illustrates that the productivity of

labor and capital or entrepreneurial activities has driven the economic growth of a country or a

region.

Davidsson (2003) argued that entrepreneurship is market behavior competitiveness, thus it

not only creates new markets but also creates new innovations into the market and a real

contribution on the economic growth. Carree and Thurik (2003) stated that entrepreneurship has

contributed to the performance of the economy, and this is conducted by introducing its

innovation, creating changes, and increasing competition.

Moreover, Landstrom (2008) suggested one important reason for the lack of visibility of

entrepreneurship research in the scientific research. Entrepreneurial research concepts are

regarded as less sensitive to explain the changing of the society, especially the economy.

Volume 7, No.3, 2013 27

Therefore, a critical reflection on the development of entrepreneurship research may increase

knowledge and understanding facts or develop economics research in the future (Landstrom et al.,

2012).

The low number of entrepreneurs is not the only the cause for the slow growing economy;

however, as can be learned from other countries where their number of entrepreneurs is directly

proportional with their economic growth, it can be assumed that the Indonesian economic growth

is also directly proportional with its increasing number of entrepreneurs. Then, the question is

how the government creates conducive environment to accelerate entrepreneurship in Indonesia.

This can be initiated by identifying and analyzing the entrepreneurial activities that have been

developed in Indonesia. Understanding these activities will facilitate policy formulation to

effectively increase the number of entrepreneurs in Indonesia.

The next question is how to verify that the increase in entrepreneurial activities can affect

the economic growth. Although, previous studies in other countries have been verified, Indonesia

has different development characteristics, economic development base, and socio-economic

conditions. Therefore, it can be presumed the economic growth will respond differently to

entrepreneurial activities in Indonesia.

Richards and Bulkley (2007) concluded that the entrepreneurship is a key attribute of

agricultural development as a leading sector of economic development. As Indonesia is a country

with great agricultural resources, the agricultural entrepreneurship can be a target of the

agricultural economic development policy. One of the agricultural subsectors i.e. the livestock

subsector has been growing rapidly. Among the livestock subsectors, broiler business has the

highest growth. The broiler business started in the '80s, and the broiler's population has currently

reached 2 billion. This is presumably due to entrepreneurial activities, i.e., great innovations in

broiler farms such as the genetic and feed technological innovations, and harvest acceleration is

also drawn by innovative processed products of broilers.

Therefore, entrepreneurship activities of broilers in economic growth with reference to

Schumpeter's theory of economic development are required to be analyzed (Witt, 2002). Thus, the

purpose of this study was to analyze the relationship between entrepreneurial activities and

economic growth at the micro level of broiler farms.

2. Literature Review

Asia Pacific Journal of INNOVATION AND ENTREPRENEURSHIP 28

2.1 Entrepreneurial Activity

Wong et al. (2005) made five general hypotheses, namely: (1) the rate of the economic

growth of countries with higher technological innovation will be faster; (2) the rate of economic

growth of countries with higher total of entrepreneurial activities will be faster; (3) the rate of

economic growth of countries with higher total of opportunity entrepreneurial activities will be

faster; (4) the rate of economic growth of countries with higher need total of entrepreneurial

activities will be slower than that of the countries whose total of entrepreneurial activities is

lower; and (5) the rate of economic growth of countries with higher potential total of

entrepreneurial activities will be faster.

In such context, it is necessary to identify the variables of entrepreneurship activities

accurately to predict the change of economic growth. There is a positive relationship between the

variables of economic growth and entrepreneurial activity variables based on innovation activity.

Dejardin (2000) showed an innovation activity which can explain endogenous variables of

entrepreneurial activities and economic growth including the choice of individual work, relative

wages, and social development projects which are both productive and non-productive.

Entrepreneurial activity variables can be explained by the policy, such as the distribution and

allocation of skills and a fiscal policy that appreciates innovation or institutional development that

encourages entrepreneurship.

Glaeser et al. (2010) stated that there are limitations in constructing the model and in

estimating the entrepreneurial activities. This is presumably due to the difficulty in identifying

independent variables of the activities on the local economy. However, the role of entrepreneurs

in shaping the local economy cannot be denied, thus ignoring the entrepreneurial activities is a big

mistake. In poor and underdeveloped countries, entrepreneurial activities are measured by the

level of business ownership, job creation, business scale, incentives for education, migration to

urban agglomerations and modern economy, diversification of production, and adoption of new

technologies (Naude, 2010).

Okpara (2007) stated that creativity and innovation are the main determinants in firm

growth. The values of creativity and innovation include the entrepreneurial activities that actively

seek for opportunities to do new things and do the existing things in a remarkable way. Therefore,

creativity and innovation trigger and push the level of entrepreneurship in business organizations,

as a direction to the customer preferences towards customer satisfaction. Innovation anticipates

Volume 7, No.3, 2013 29

market needs, offers additional quality or service, organizes efficiently, and controls costs. Hence,

innovation should be seen in terms of product innovation, process innovation and innovation

company (Vokalo, 2000).

Musai et al. (2011) investigated the relationship between entrepreneurship and innovation

on economic growth. They concluded that there was a positive influence on entrepreneurship and

innovation on economic growth. Variables examined by Musai et al. (2011) included: Number of

personal computers per 100 inhabitants; Networks Internet safe per one million people; Budget

expenditures for research and development in the field of basic research, applied research and

experimental development; capacity of international Internet bandwidth for connections in

Megabits per second (Mbps); Receipts of royalties and license fees such as patents, copyrights,

trademarks, industrial processes, franchises, movies and manuscripts; Value-added wholesale and

retail, transportation, professional, and personal services such as education, healthcare, and real

estate services; Information and communication technology exports; number of new firms,

defined as firms registered in the current year of reporting, and cost of starting a business.

Entrepreneurship and innovation conditions vary among regions and companies.

Innovations are described by capacity in generating new ideas, creating knowledge, organizing

learning, in terms of market potential, accessibility to knowledge, knowledge resources, and

creative abilities as innovative knowledge accumulation. Each region or company has its own

specific base of scientific knowledge, technology, and entrepreneurship as corporate knowledge

assets, and other organizations that are in the area, human and social capitals are associated with

the residents in an area. Therefore, innovation component consists of a system of education,

knowledge production, and laboratory studies (Andersson &Karlsson, 2006).

In the entrepreneurship theory, business risk is also associated with entrepreneurial activity.

Economic activities with higher productivity have a better ability to share the risk, thus having

better entrepreneurial activities (Rampini, 2003). Caliendo et al. (2006) found that an entrepreneur

makes risky decisions in uncertain environments, so that an individual who has a strong

willingness to risk more is likely to become an entrepreneur. This is demonstrated by the courage

in risk-taking where individuals who are out of work have more courage than those who were

previously unemployed in starting a new business. Risk can be explained from the willingness to

take risks in occupation, willingness to take risks in financial matters, general willingness to take

risks, and willingness to take risks in investment.

Asia Pacific Journal of INNOVATION AND ENTREPRENEURSHIP 30

2.2 Entrepreneurship and Economic Growth

Entrepreneurs are risk takers and innovators who produce goods or services that can boost

employment and economic growth. Hussain et al. (2011a) concluded that there was a positive

relationship between entrepreneurship and employment and the Gross Domestic Product (GDP) of

Pakistan. GDP is an indicator of a country's economic growth, making entrepreneurship as a new

variable in economic growth.

Audretsch and Keilbach (2008) put the entrepreneurship capital as the independent

variable that explains the regional economy performance. They constructed a single equation

model with two equations and estimated by three stage least square (3SLS) error correction. The

first equation was the performance of the regional economy (endogenous variable) as a function

of the stock of capital, labor, intensity of R & D (research and development) and entrepreneurial

capital, while the second equation described the level of entrepreneurial capital and the regional

capital (area) as a function of economic regional performance and other exogenous variables

forming entrepreneurial capital, such as the level of technology, taxes, population, and emergence

of new ventures.

The research panel of Kreft and Sobel (2005) in all U.S. states indicated that the degree of

economic freedom, i.e. low tax regulations are not strict, and private copyright protection have a

significant impact on entrepreneurial activities that generate economic growth. Liaison between

economic freedom and economic growth was an entrepreneurial activity. Thus, economic freedom

produces economic growth, mainly due to private sector productive activity that increased the

entrepreneurial activities variables.

Audretsch (2007) concluded that entrepreneurship is an important mechanism facilitating

the increasing knowledge that generates economic growth so that entrepreneurial activities

promote economic growth as an effort to promote entrepreneurship capital or economic capacity

to approach new company growth.

Li et al. (2012) revealed that entrepreneurship had significant positive effects on economic

growth in China. The finding was robust even with institutional controls and other demographic

variables. The present study provides some evidence that can be used as a basis for evaluating the

impact of China's policies on private businesses that have been increasing slowly since the late

Volume 7, No.3, 2013 31

1970s. Even today, China has become a new economic power in the world, its economy has

rapidly been growing, and its entrepreneurship has also made a higher standard of living.

Therefore, the policymakers‘ understanding on the entrepreneurial activities in the

economic growth can be actualized through policies in the capital program, subsidy targets for

small businesses, and growth of new businesses (Hall & Sobel 2008). In other words, policy

makers should focus on policies to improve productivity. In addition, entrepreneurial ambition is

also a deciding factor for the growth of the national economy. Stam et al. (2007) that used data

from the Global Entrepreneurship Monitor concluded that ambitious entrepreneurs contribute

more strongly to macroeconomic growth than other entrepreneurial activities, especially in the

transition countries.

High (2009) who tested the institutional strengthening theory concluded that the division

of labor, labor income, money management, and ownership of the organization are entrepreneurial

activities that drive economic growth, indicating that economic growth can be explained from

entrepreneurial activities at the firm level.

Analysis of Leeson and Boettke (2009) concluded that developing countries tend to

overlook and misunderstand the relationship of entrepreneurial activities and economic growth. In

fact, investing in technology as a core of productive and entrepreneurial activities has generated

impressive levels of economic growth. These analyses give meaning on research in the field of

economics so that it is better to focus on the exogenous variables to estimate the impact of

entrepreneurial activities on economic growth endogenous variable.

Research of García-Penalosa and Wen (2008) showed that the rate of economic growth

was influenced by the type of work selected by the skilled and unskilled labors. In addition, labor

skills are highly related to wage. Low and unequal pay indicated by differences in tax rates can

affect tax revenue. In fact, the higher tax rates can simultaneously increase economic growth and

reduce inequality. It is confirmed that the quality of human resources is essential for the

entrepreneurship, creation of jobs, and economic growth. Therefore, research and development

policies promoting entrepreneurship must be continuously conducted to achieve the level of

efficiency and economic equity.

In the society context, the allocation of working time of the society as entrepreneurs and

entrepreneurial learning activities become the major factors for the economic growth (Ferrante,

Asia Pacific Journal of INNOVATION AND ENTREPRENEURSHIP 32

2005). Another finding from the research of Ferrante (2005) is an important part of the

educational entrepreneurial human capital. This is because entrepreneurial human capital is a

major factor that maintains the competitiveness of small firms in the global economy. In addition,

the amount of working time spent by small businesses in entrepreneurial activities affects

business performance and reveals talents of entrepreneurship. Entrepreneurs have an intuition to

allocate more time on productive activities, and in the end, they bring up entrepreneurial activities

and economic activities with higher growth rates.

Cognitive and behavioral aspects are two of the main components of social capital that

stimulate the development of confidence and entrepreneurial networks. Coherence of these

aspects is a necessary catalyst for the development of entrepreneurship and economic growth

(Tanas & Saee, 2007). Knowledge is recognized as an essential ingredient for economic growth

besides the physical capital and labor, and this knowledge exploited to change products and

processes becomes more commercial. However, the stock of knowledge in research institutes and

capacity of businesses or employees of the company are not sufficient, because not all companies

take advantage of new knowledge and are not aware of the existence of entrepreneurial

opportunities.

Mueller (2007) who tested the hypothesis of entrepreneurship relationship, knowledge and

economic growth, concluded that the knowledge drove innovation at business start and promoted

economic growth effectively. This is because a new company is a vehicle for transferring and

utilizing knowledge, and it tends to follow the position of the market, and the entry of new

companies into the knowledge-intensive industries may be the result of spin-offs from the existing

companies.

Research of Salgado-Banda (2007) on the impact of entrepreneurship on economic growth

in 22 countries Organization for Economic Co-operation and Development (OECD) found a

positive relationship between the variables of entrepreneurship productivity i.e. the level of state

innovation and economic growth. Th