Regional Business Ecosystem: Institutional Capacity

Abstract

The article discusses the development and justification of a methodology for investigating the institutional configuration of the regional business ecosystem. In order to improve the quality of research on regional entrepreneurship, it is argued that an ecosystem approach that takes into account the impact of context on the generation and development of entrepreneurial processes is promising. The key factor leading to real differentiation of conditions of business in a regional cut is that at the level of regions often the formal "rules of the game" created including, taking into account the interests of regional stakeholders, are treated, interpreted and applied by various participants of economic interaction (seeking to improve the structure of payments) differently, depending on the pursued purposes. An analysis of the institutional environment of Russian entrepreneurship is being carried out. A model is proposed for the expected additional income of regional authorities if institutional reconfiguration of the regional business ecosystem is launched. The economic point of the model is to assess the potential benefits of authorities launching a mechanism to create a favourable institutional reconfiguration of the regional business ecosystem in order to obtain additional resources in the face of reduced budget revenues and increased social commitments. The practical significance of the study is the possibility of using the proposed approach to assess the parameters of the state of the institutional environment in the Russian regions and design a favorable institutional configuration of the regional entrepreneurial ecosystem, which contributes to the development of small and medium-sized businesses.

Keywords: Entrepreneurshipregional entrepreneurial ecosystem; ecosystem approach

Introduction

As is known, one of the key factors affecting the dynamics of social and economic growth of the constituent entities of the Russian Federation is the quality of institutional support for the business environment of the region, which determines the basic conditions for the functioning of economic agents, the performance of which has a direct impact on the level of social and economic development of the Territory. At the same time, the development of the business environment of individual regions is characterized by the existence of various institutional barriers to the development of entrepreneurship, the poor quality of institutional support for the interaction processes of economic agents, which is manifested in the rather high level of opportunistic behavior of both representatives of power structures and business entities. This situation requires further research on the parameters of the business environment based on an institutional approach that sees merit in taking into account the spatial specificity of business rules.

Problem Statement

If we consider the institutional environment of Russian business as a whole, we can state that it is characterized by a whole set of problems that negatively affect the development of domestic entrepreneurship. By and large, the institutions of the business environment are a complex institutional system that is characterized by heterogenicity and dynamic variability. And, researchers argue, complex institutional systems inevitably create institutional gaps - between related institutions, between rules of the game and rules of control, finally between institutional levels. This gap means that there is no link between related rules, that new and existing institutions are not complementary (Kuzminov et al., 2005). The Russian institutional environment of entrepreneurship is characterized by institutional gaps. An indicator of the existence of such gaps may be, for example, a large number of mandatory rules, regulations and requirements that the business entity must comply with de jure. At the same time, compliance with all mandatory rules, regulations and requirements, as provided for in the current legislation, is often not possible due to their multiplicity, contradictions and volatility on the one hand, and high costs for their implementation on the other.

In many ways, the established institutional environment is a constraint on the growth of the number of business entities and their economic activity. For example, in the established institutional environment, small enterprises are not profitable to become medium-sized because of the fact that with the growth of the company there is more reporting and, in some cases, more inspection. According to NISIPP, small and medium-sized enterprises spend approximately 15.1 billion rubles per year on reporting. On average 7.1 forms and 4.3 thousand rubles of costs will be available for 1 subject of small and medium-sized entrepreneurship. Thus, for example, in the sphere of food production, including beverages, the costs of small businesses amount to 39.6 thousand rubles per enterprise, and at the average enterprise already 89.5 thousand rubles.

Thus, the institutional context of Russian entrepreneurship is characterized by the presence of serious non-production costs for business entities during their functioning according to the established "rules of the game". However, the specific parameters of the region 's institutional environment affecting business processes are determined not simply by a set of institutions, but by the way in which they interact (institutions both formal and informal) - that is, the institutional configuration (Degtyarev et al., 2014; Malikov & Grishin, 2017; Solodilov et al., 2017a).

It should be noted that the concept of institutional configurations has been applied by us for several years to the study of the regional business environment for enterprise development. In our opinion, the configuration approach provides a reliable and comprehensive description of the characteristics of the regional enterprise system, given that the justification for the structural and functional certainty of the system, together with the type and peculiarities of the structure of subsystems and elements, takes into account the ways in which the activities of the system are coordinated and the integration of all its elements and subsystems involved in the generation and development of entrepreneurial processes is ensured. For the first time, the configuration approach to research of regional business environment institutions was justified in a number of our works (Degtyarev et al., 2014; Malikov & Grishin, 2014), which proposed a definition of the institutional configuration of the regional business environment, Which we refer to as a set of business-mediating and interoperable basic and complementary regional formal and informal institutions, Ordered and structured in a particular hierarchical combination, together defining rules; And restrictions on the economic behaviour of economic entities within a regional (spatial) enterprise system (Solodilov et al., 2017b). Thus, we have justified that the parameters (limitations) of the economic activity of a particular business entity are determined not by a simple set of institutions of the business environment, but by their combination interaction, which can weaken the impact of one institution and increase the impact of another, which leads to the creation of a heterogeneous institutional space in the region.

Proceeding from the above, it is possible to conclude that the key factor leading to real differentiation of conditions of business in a regional cut is that at the level of regions often the formal "rules of the game" created including, taking into account the interests of regional stakeholders, are treated, interpreted and applied by various participants of economic interaction (seeking to improve the structure of payments) differently, depending on the pursued purposes. It is this feature that causes significant differences in the parameters of the business environment of different regions of the country and leads to the formation of regional entrepreneurial ecosystems with specific institutional configurations, in the contour of which specific, differentiated relative to the participants of interaction, "rules of the game" arise, develop and modify.

Thus, it can be stated that the institutional environment of a large part of the Russian regions needs the institutional reconfiguration of the regional entrepreneurial ecosystem, that is, the initiation of a process of changing (recombination) the ways and nature of interaction of existing institutions of the business environment with a view to the most rational use of the potential of institutions of the business environment for the development of productive entrepreneurship. Institutional reconfiguration should result in a set of structured and coordinated rules of economic behaviour in the regional business ecosystem, as well as the ways in which they are interpreted and applied, the complementary and complementary effects of which will encourage the bulk of economic agents operating in a given territory to choose a productive (Baumol, 1990) format of activity that provides them with commercial benefits, while at the same time being of public utility.

It appears that institutional reconfiguration of the regional business ecosystem can have a serious chance of success if aligned with resource, technological and institutional constraints and based on built-in mechanisms that stimulate planned institutional changes and prevent dysfunctions and institutional traps (Polterovich, 2006). The most important factor in successful reconfiguration of the regional business ecosystem is the ability of regional authorities to bring together regional elites to support institutional change. This is due to the fact that the institutional environment of the business will change effectively only when influence groups are interested in these changes (at least partially), which have a decisive influence on the formation and maintenance of "rules of the game" in business practice. Therefore, the most important condition for successful reconfiguration is the consolidation of regional elites by forming a broad regional coalition to support them, "which, in addition to direct actions, is capable of generating a flow of resources and influence to compensate for the possible losses of groups losing as a result of the implementation of this development option" (Auzan & Zolotov, 2008, p. 97).

Research Questions

The article discusses:

  • Investigation of the possibility of applying the ecosystem approach to existing regional economic models.

  • Studying the context of the formation and development of entrepreneurial processes.

  • The study of the possibility of assessing the parameters of the state of the institutional environment in the Russian regions and further design.

Purpose of the Study

Development and justification of a methodology for studying the institutional configuration of a regional business ecosystem.

Research Methods

In our opinion, the adjustment of the policy in the sphere of management of entrepreneurship development should be based on a serious research platform, which includes all the best achievements of domestic and foreign scientific thought. The achieved level of scientific research in the field of entrepreneurship seems to have exhausted its potential and, as practice shows, does not allow to effectively solve the problems of modernization of mechanisms of management of development of small and medium-sized businesses. The current state of affairs testifies to the need for a certain methodological "reset" of research on the development of entrepreneurship (including small and medium-sized ones) in the Russian regions, their translation into a new methodology based on institutional analysis and a systemic approach.

In this regard, in terms of further developing a systemic approach to regional entrepreneurship research and adapting it to address the practical challenges of managing business development in a spatial context, an ecosystem approach is very promising, based on a study of the evolution of the nature of the interactions of economic agents, the patterns of their innovation and their relationship with the environment (Mercan & Goktas, 2011). At present, the concept of entrepreneurial ecosystems is becoming more common in foreign and domestic scientific publications devoted to entrepreneurship research (Acs et al., 2014; Auerswald et al., 2014; Drexler et al., 2017; Dorashenko & Shelomentsev, 2017; Spigel, 2017; Stam, 2014), which indicates recognition of the serious prospects of using an eco-system approach in the study of the Enterprise Institute both in terms of justification of theoretical and methodological provisions and in terms of solving practical tasks in the field of business development.

This approach goes back to the work of Moore (1993), and the basic ideas that formed the basis of entrepreneurial ecosystems were first developed in the 1980s and 1990s as part of a methodological shift in the study of entrepreneurship, which led to a shift from personality-based research to a broader paradigm that included taking into account the influence of social, cultural and economic factors on entrepreneurial processes (Drakopoulou Dodd & Anderson, 2007). In general, this has become part of a broader shift from the concepts of an entrepreneur as a lone Schumpeter "economic superhuman" to a subtler understanding of entrepreneurship as a social process implemented in a certain context (Nijkamp, 2003). In the outline of this approach, we are of the view that many characteristics of the entrepreneurial process are inherently local and that regional entrepreneurial ecosystems need to be considered as the object of entrepreneurship research, in terms of its impact on the environment. In the framework of this study, we refer to the regional business ecosystem as the set of interconnected business entities (both potential and business), their environments and interactions (Exchange systems) that influence the identification and commercialization of entrepreneurial opportunities in the local space (Region). Thus, the establishment and development of the ecosystem approach has been agreed upon by the need to explain the impact of regional economic and social contextual factors on entrepreneurship, with the time-bound, spatial, social, organizational and market aspects of the context (Zahra, 2007). As part of the ecosystem paradigm for the study of entrepreneurship, context is seen as a simple management variable, but as the most important environmental factor whose study makes it possible to understand how cultural, social, political and economic structures and processes associated with a certain space and time affect all aspects of entrepreneurship. Hence, the entrepreneurial context is paramount and its research is a crucial research task.

All the above makes it possible to conclude that there is a need for a new approach to the study of the peculiarities of enterprise development, which should be based on the need to take into account the institutional, social and political context in which the direct development of entrepreneurship takes place (Acs et al., 2016; Bogatyreva & Shirokova, 2017; Chepurenko & Yakovlev, 2013).

Within this article, certain aspects of the institutional context are of research interest. The institutional context is based on the concept of formal and informal institutions as "rules of the game," formulated by North (1991). As Sukharev (2005) notes: "Institutions determine the actions of economic subjects, so absolutely no matter, what properties the subject itself has and, therefore, it is not necessary to be set by models of human properties, but it is necessary to create models of action or, better still, models of functioning of institutions, these actions are defining" (p.45).

The preliminary behavior is embedded in the institutional context and is the result of stimulating or limiting effects (Shirokova & Sokolova, 2013; Welter & Smallbone, 2011), for example, regulatory political and regional authorities (Stenholm et al., 2013). Thus, the institutional approach to the study of entrepreneurship implies that institutions set the conditions in which the entrepreneur acts and makes decisions on the establishment and management of his own business (Bruton et al., 2010; Peng, 2003). Baumol (1990) argued that it is the laws and regulations in force in the economy - not the aggregate supply of entrepreneurs or the nature of the goals pursued by them - that define significant changes in the indicators of entrepreneurship growth at different periods of development of certain states. At present, the influence on entrepreneurship of both formal institutions (Acs & Karlsson, 2002) and informal institutions (Manolova et al., 2008) has been studied quite well in the scientific literature.

For example, it is scientifically justified that in conditions of transition economy the vector of business development is often mediated by the peculiarities of the institutional environment (Cuaresma et al., 2013; Dallago, 2000; Molz et al., 2009; Blagojevic & Damijan, 2013; Volchek et al., 2013; Welter & Smallbone, 2011). Accordingly, insufficient attention to institutional factors, much less their disregard, can lead to errors in making management decisions in the process of implementation of plans for social and economic development of the Territories.

Thus, an analysis of the quality of the institutional environment is important in an ecosystem approach to entrepreneurship.

If a mechanism for institutional reconfiguration of the regional business ecosystem is launched, the model for estimating the expected utility (additional income) of U d i , P s , P r , F j , Q j , g j regional authorities (local government) as a result of achieving a favourable institutional reconfiguration of the regional business ecosystem can be presented as a function:

U d i , P s , P r , F j , Q j , g j = 1 - P s · d i - Q j - P r · F j + P s · d i - Q j - P r · F j - g j , ( 1 )

U w i , P u , P p r , M , C , z = 1 - P u w i - C - P p r · M + P u w i - C - P p r · M - z j where d i – is the average value of additional economic return from the i-entity of the business due to the formation of favorable conditions for business activity as a result of institutional reconfiguration of the regional entrepreneurial ecosystem; P s – probability of maintaining the parameters of operation of the i-entity of the business in the previous mode (Business rejection of institutional changes); F j – resource provision directed to the institutional reconfiguration of the regional entrepreneurial ecosystem by the j-th authority; P r – probability of forming a regional coalition of interest groups and a positive decision to launch a mechanism of institutional reconfiguration of the regional entrepreneurial ecosystem; Q j – costs of j-authorities in connection with the encouragement of economic agents to operate under the new rules of the game, which form part of the new institutional configuration of the regional entrepreneurial ecosystem; g j – additional costs of j-authorities due to underfunded territory due to insufficient institutional reconfiguration of the regional business ecosystem.

Having equated the obtained function (1) to zero, after corresponding transformations, we obtain:

d i = Q j + P r · F j + P s · g j ( 2 )

Q j = d i - P r · F j + P s · g j ( 3 )

P s = d i - Q j - P r · F j / g j ( 4 )

P r = d i - Q j - P s · g j / F j ( 5 )

F j = d i - Q j - P s · g j / P r ( 6 )

From the formulas obtained, it is possible to calculate a number of parameters of the institutional configuration of the regional entrepreneurial ecosystem, which provides additional economic benefits from business entities and increases their contribution to the socio-economic development of the Territory (table 01 ).

Table 1 -
See Full Size >

The economic point of the model is to assess the potential benefits of authorities launching a mechanism to create a favourable institutional reconfiguration of the regional business ecosystem in order to obtain additional resources in the face of reduced budget revenues and increased social commitments.

Findings

On the basis of the above, it can be noted that the emergence of institutional barriers in the development of regional entrepreneurship is primarily due to the inadequate institutional configuration of the regional business ecosystem, characterized by an inefficient combination and poorly coordinated interaction of the entire set of institutions governing economic relations in the region. In general, it should be noted that the structural combinations observed in the Russian regions (and sometimes purposefully designed) and the mutually trapping connections of basic and regional formal and informal institutions:

  • Frequent measures are aimed at providing restrictive measures to the detriment of solving the problems of stimulating certain interactions of economic agents.

  • Are not balanced in terms of the basic purpose of the functioning of institutions, as a result of which their combination does not provide for the formation of institutional corridors (institutional attractions) with a given vector of enterprise development, coupled and coordinated with the solution of other tasks of socio-economic development of the regions.

  • Are effective in securing the interests of individual stakeholders, but not effective in providing incentives for the mass development of productive and innovative (as well as any value-added) entrepreneurship.

Conclusion

Thus, it seems that the release of so-called institutional barriers to the development of entrepreneurship in regions is possible through the institutional reconfiguration of the regional entrepreneurial ecosystem, based on the recombination of the ways and nature of interaction of institutions in a spatial context. The basis for institutional reconfiguration is the establishment in the regional business ecosystem of a combination of institutions whose complementary effects will facilitate the selection by the bulk of economic agents operating in a given territory of the format of activities that provide them with commercial benefits, while at the same time contributing to public utility. This will solve the main task - creation of a single competitive space for entrepreneurial structures, in the contour of which commercial successes will be achieved by the most effective business entities, and economic activity of the whole set of main economic entities will be in the interests of development of regional and local communities.

References

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Publication Date

20 October 2020

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978-1-80296-089-1

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European Publisher

Volume

90

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Economics, social trends, sustainability, modern society, behavioural sciences, education

Cite this article as:

Solodilova, N. Z., Malikov, R. I., Grishin, K. .., & Shaykhutdinova, G. F. (2020). Regional Business Ecosystem: Institutional Capacity. In I. V. Kovalev, A. A. Voroshilova, G. Herwig, U. Umbetov, A. S. Budagov, & Y. Y. Bocharova (Eds.), Economic and Social Trends for Sustainability of Modern Society, vol 90. European Proceedings of Social and Behavioural Sciences (pp. 103-111). European Publisher. https://doi.org/10.15405/epsbs.2020.10.03.13