Editor in Chief:
Bong Jin Cho (Korea, E-mail: [email protected])
Associate Editors
Richard P. Bagozzi (U.S.A., E-mail: [email protected]) : Guest Editor
Hermina Burnett (Australia, E-mail: [email protected])
Sun Young Park (Korea, E-mail: [email protected])
JinHyo Joseph Yun (Korea, E-mail: [email protected])
Editorial Board:
Deepanwita Chattopadhyay (India, E-mail: [email protected])
Check Teck Foo (Singapore, E-mail: [email protected])
Chih-Hung Hsieh (Taiwan, E-mail: [email protected])
Rajendra Jagdale (India, E-mail: [email protected])
R.M.P. Jawahar (India, E-mail: [email protected])
Lynn Kahle (U.S.A., E-mail: [email protected])
Tomoyo Kazumi (Japan, E-mail: [email protected] )
William Walton Kirkley (New Zealand, E-mail: [email protected])
Harald F.O. von Kortzfleisch (Germany, E-mail: [email protected])
Hyoung San Kye (Korea, E-mail: [email protected])
Abdul Aziz Ab Latif (Malaysia, E-mail: [email protected])
Ki Seok Lee (Korea, E-mail: [email protected])
Zhan Li (China, E-mail: [email protected])
Zhao Min (China, E-mail: [email protected])
Patricia Ordoñez de Pablos (Spain, E-mail: [email protected])
Hadi K Purwadaria (Indonesia, E-mail: [email protected])
Aviv Shoham (Israel, E-mail: [email protected])
Zhen Wang (China, E-mail: [email protected])
Richard White (New Zealand, E-mail: [email protected])
Tan Yigitcanlar (Australia, E-mail: [email protected] )
Benjamin J.C. Yuan (Taiwan, E-mail: [email protected])
Yuli Zhang (China, E-mail: [email protected])
mailto:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]://mail2.daum.net/hanmail/mail/[email protected]:[email protected]:[email protected]://mail.kobia.or.kr/Mail/[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]
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
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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:
[email protected] Assistant Professor, School of International Studies, Konkuk University, E-mail: [email protected] Corresponding Author, Professor, Miller MOT School, Konkuk University, E-mail: [email protected]
mailto:[email protected]:[email protected]:[email protected]
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: [email protected]
Lecturers, Department of Agribusiness, Faculty of Economics and Management IPB, Indonesia
mailto:[email protected]
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