For the analysis of the present case study we defined two different, but interrelated levels of analysis. The first, and more specific, is the individual entrepreneur level. In our case the entrepreneur is the owner and founder of MOVAL, referred to here as the ‘anchor’ entrepreneur. The second level of analysis is the furniture cluster. In this case we shall study the factors, or institutional drivers, associated to its trajectory, because of the emergence to the consolidation, as well as to its decisive role in positively transform- ing economic and entrepreneurship culture in the region.
For a historical account of the emergence and development of the
‘anchor’ company, MOVAL, as well as the furniture cluster as a whole, we shall use an event driven approach, based on process theory (Van de Ven et al., 2004). We shall identify key events in the history of the ‘anchor’
company and entrepreneur, and that of the cluster, and discuss the out- comes associated with these events. Van de Ven et al. remind us that the event driven process approach implies the following:
● Entities participate in events and may change over time
● Time ordering of independent events is critical
● Explanations are layered and incorporate both immediate and distal causation
● Entities, attributes and events may change in meaning over time
● Generality depends on versatility across cases.
Analytical Framework for the ‘Anchor’ Entrepreneur Trajectory and Role For the emergence process of the ‘anchor’ company, MOVAL, we shall use the effectuation theory proposed by Sarasvathy (2001) as a framework of analysis. As mentioned earlier, the case study will not be used to test hypotheses on the effectuation theory, but to illustrate to what extent the concepts and categories that comprise the theory, especially the four prin- ciples that constitutes the baseline of the theory, are operational and could explain the processes and decisions of the entrepreneur’s trajectory.
We have so far referred to the emergence of the ‘anchor’ company and of the cluster, and not to the creation of it. This is not a semantic choice. We take the stance that the whole process of initiating and developing afirm, or a col- lective institution, like a manufacturing cluster of companies, is one of emer- gence in which the actions of the entrepreneur (or agents in general) are in a constant relationship with resources and structures (environments) and co- evolve in this process. So, even if there is a formal event of the legal creation of a company or of an association of business people, the consolidation of the phenomenon (afirm or an institution) will be done gradually, through an emergence process (Lichtenstein et al., 2006; Sarason et al., 2006). As in the effectuation theory framework, this process is essentially one of exploiting contingencies instead of exploiting knowledge (Sarasvathy, 2001).
We shall confront the key events in the emergence process and develop- ment of the ‘anchor’ company, MOVAL, to the four principles that form the core of effectuation theory, as proposed by Sarasvathy (2001):
1. Affordable loss rather than expected returns: as decision making crite- ria: effectuation predetermines how much loss is affordable and focuses on experimenting with as many strategies as possible with the given limited means. The effectuator prefers options that create more options in the future over those that maximize returns in the present.
2. Strategic alliances rather than competitive analysis: causation models emphasize detailed competitive analyses. Effectuation emphasizes strategic alliances and precommitments from stakeholders as a way to reduce and/or eliminate uncertainty and to erect entry barriers.
3. Exploitation of contingencies rather than exploitation of pre-existing knowledge: when a pre-existing knowledge, such as expertise in a par- ticular new technology, forms the source of competitive advantage, causation models might be preferable. Effectuation, however, would be better for exploiting contingencies that arose unexpectedly over time.
4. Controlling an unpredictable future rather than predicting an uncer- tain one: causation processes focus on the predictable aspects of an uncertain future. The logic for using causation processes is that to the extent we can predict the future, we can control it. Effectuation, however, focuses on the controllable aspects of an unpredictable future.
The logic for using effectuation processes is that to the extent we can control the future, we do not need to predict it.
Analytical Framework for the Cluster Trajectory and Role
In analysing the emergence and development of the furniture manufactur- ing cluster and its impact on the local and regional economy, we shall
conditions, the institutions and the intangible factors proposed by Venkataraman (2004).
The Economic Environment Conditions
The environment conditions prevailing in the country has, of course, an impact on the outcome of entrepreneurial ventures and can foster or impede it. So, in order to get a more precise evaluation of the impact of the other factors on these ventures, it is important to control (or at least iden- tify) the conditions prevailing in the environment in which the entrepreneur is inserted.
We shall measure the prevailing environment conditions using the definition adopted by Covin and Slevin (1989). They defined two polar sit- uations for the environment: the benign environment and the hostile envir- onment. The benign environment was defined by the prevalence of the following conditions: very safe, little threat to the survival and wellbeing of the firm and rich in investment and marketing opportunities. The hostile environment is characterized, according to Covin and Slevin (1989), as very risky, stressful and exacting, in which it is very difficult for the firm to keep afloat and a false step can mean the firm’s demise.
Based on the retrospective evaluation of the entrepreneurs and other stakeholders interviewed, and the evaluation of the authors in considering the macro-economic indicators prevailing at the time of the events defined along the cluster trajectory, the economic environment condition was qualitatively classified from intensively hostile () to intensively benign
().
Local Institutions
Venkataraman (2004) points out the importance of local institutions as mechanisms that can either foster or impede entrepreneurship. In the present case study we identified five institutions that played different roles in the process of the regional transformation at different points in time.
Cultural, social and economic models
Venkataraman (2004) observed that ‘a region exists in a state of “virtuous equilibrium” when it has been conducting economic and cultural activities for long periods and has settled into a predictable and comfortable posi- tion’ (p. 158). This was, to a large extent, the case of the city of Arapongas.
For this situation to change, as we shall see, other institutions had to be developed in order to replace or modernize the existing ones.
Public policies
The mayor that was in office in the 1965–70 period was known as a very energetic and visionary politician. He foresaw the city industrialization as a way to face the economic instability and weak economic dynamic associ- ated with the agricultural economic base and as a trigger to stimulate changes in cultural and social values. His effective contribution was the approval of a law creating the industrial district of Arapongas. To foster industrialization City Hall segregated a vast portion of land and provided the basic physical infrastructure.
The entrepreneurs interested in the city would have land in the industrial district donated by City Hall and, in addition, would get tax exemption from local taxes for a period of three to ten years, depending on the amount of investment. We shall argue that this decision proved to be very effective in the end. But in the beginning it aimed at something else: to attract big companies from other cities and countries, benefiting from a dynamic environment prevailing in the country at that time, which was experiencing a fast and intense process of industrialization. It is also interesting to note that the mayor’s initiative was associated with providing what Venkataraman (2004) called, the tangible (or necessary) factors, in this case physical infra- structure. As we shall see, this decision alone, without the emergence of the intangible factors, would be ineffective.
The ‘anchor’ entrepreneur
The role of the ‘anchor’ entrepreneur transcended that of a private entre- preneur aiming to making a profit with that business and assumed an institutional role in the process of transforming the region of Arapongas.
Not only did he contribute decisively to the creation of other institutions that were crucial for the process, but he also became a role model and, as we shall show, the executive leadership that played a crucial role in fos- tering entrepreneurship and allowing the regional transformation to take place.
The Furniture Makers Association
As mentioned before, in 1978, ten years after the creation of MOVAL and six years after the decision to build new facilities in the industrial district, the ‘anchor’ entrepreneur played a decisive role in the creation of the Arapongas Furniture Makers Association, being their first chairman. The formal objective of the association, at his inception, was to carry out tech- nical and political actions that could benefit the companies of the cluster collectively, such as employee training, technical courses for prospective workers, sharing information on suppliers and coordination of actions before public authorities.
One of the most important achievements of the Furniture Makers Association was the establishment of the National Furniture Makers Trade Show, which has taken place in the city of Arapongas every odd year, since 1997. The trade show congregates most of the local industries and is open to customers (wholesale and retail traders) from all around the country.
The trade show takes place in the Arapongas Furniture Trade Show pavil- ion, a building of 40 000 square meters, built by the initiative and with funds of the association, once again a pioneer idea of the ‘anchor’ entre- preneur. The project of building the trade show pavilion was decided in 1991 and took five years to be completed. So, in February 1997, the first Furniture Makers Trade Show took place. The project expanded and included a Trade Show for Equipment, Raw Materials and Implements for the Furniture Industry, which takes place in every even year.
These five institutional drivers were confronted with the key events of cluster trajectory and they were, in the same fashion of the economic envir- onment conditions, qualitatively classified in terms of their negative ( to ) or positive (to ) impact on that trajectory.
The Intangible Factors
Venkataraman (2004), identifies a set of seven intangible factors for improv- ing regional technological entrepreneurship. In the following section we present these seven intangible factors with a brief definition or description extracted from the discussion of each intangible factor developed by Venkataraman (2004).
1. Focal points capable of producing novel ideas. Novel ideas originate from bright and knowledgeable individuals. And these knowledgeable individuals are often in the neighborhood of their region’s great insti- tutions: this is where talent congregates and where ideas are produced.
2. The need for the right role models. If risk capital is combined with novel ideas the result will be success for a few people. They become the new role models who show their peers that entrepreneurial success is not a theory.
3. The need for informal forums of entrepreneurship. Access to role models mostly occurs in informal forums. Information, stories and celebrations about real entrepreneurship rarely happens in company offices or in routine jobs. Informal forums are necessary to discuss the trench wisdom that is required to execute these ideas.
4. The need for region-specific ideas to be created. This intangible is related to idiosyncratic value. Sustained success often comes when it is
based on some idiosyncratic or special ingredient that the regions have to offer the world. Such idiosyncrasy may be based on the region’s core competence, natural resource or some other source of idiosyncratic advantage.
5. The need for safety nets. Attempts at novelty are always accompanied by failure. Unless there are mechanisms and institutions that address these failures, new trials will dry up. The need is for safety nets for entrepreneurs who may fail in their attempts to create something new.
These may take the form of a job in an existing company, sometimes even better than the one the entrepreneur had before they embarked on an entrepreneurial venture. In addition, in these places, people do not attach stigma to a failed business and even if a venture was not suc- cessful for an individual, they still retain human and social capital.
6. The need for gateways to large markets. Unless easy access to larger markets are provided to aspiring and potential entrepreneurs in regions that do not have size and density advantages, both the quantity and quality of new enterprises will be affected. Not only the physical infra- structure is important and necessary to provide such access to larger markets. Even more vital for this aim is the intangible social network infrastructure. In addition to social and economic ties, the creativity with which a region provides access to product and financial markets will make a difference to its success. According to Venkataraman (2004), this brings us to the final intangible.
7. The need for executive leadership. The executive leadership is the kind that roll up their sleeves and does the hard work. This is the kind of leadership that will do the necessary work to ensure that potential entre- preneurs have (1) access to institutions that produce new knowledge;
(2) access to risk capital; (3) access to the right role models; (4) the necessary informal forums for entrepreneurial education and experi- ence; (5) the necessary safety nets and the culture of accepting failure;
and (6) access to gateway cities and large markets for their products and services. It is clear from the definition proposed by Venkataraman (2004) that this is a focal and essential intangible factor. In fact it is the presence and effectiveness of the executive leadership that will ensure that the other intangibles will be developed and work. They will also play a central role in the region to solve vicious cycle problems.
In the case of the intangible factors, instead of measuring the intensity of the factors, as in the previous levels of analysis, we shall identify which of the intangibles emerged in the different key events, and the institutional drivers that allowed them to emerge. The illustration of whether these factors were present in the process of the emergence and development of
is not a technological cluster. We could then suggest that Venkataraman’s instrument can be used to foster regional entrepreneurship, based on even more traditional and mature industries, in what is an alternative and more accessible instrument for developing countries, in which the scarcity of strategic resources, such as risk capital, technology and skilled labor, is more severe.