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Two of the most exciting events in the late 20th century have been the economic reform in China - the country where one-fourth of the world's population resides - and the collapse of communism in Russia - one of the world's superpowers. As China and Russia step boldly toward free market systems, entrepreneurial ventures are increasing. While there are striking similarities among the emerging ventures in both countries, there are important differences which also need to be considered. Both researchers in entrepreneurship and business professionals interested in doing business in China and the former Soviet Union can benefit from a clearer understanding of these similarities and differences. This article traces the genesis of entrepreneurship in both countries, explores the characteristics of economic reform, and describes the similarities and differences in the development of entrepreneurial ventures in China and Russia. Three over-arching issues frame the discussion of entrepreneurial development in both countries: the political environment, the investment environment, and the management environment. In addition, implications for foreign investors are explored. The Concepts of Entrepreneurship and Entrepreneurial Ventures The motivation for entrepreneurial activities is to acquire profits; thus, profit seeking is a primary factor in entrepreneurship (Shumpeter 1934). Entrepreneurship can be defined as: The process that takes place in different environments and settings that causes changes in the economic system through innovations brought about by individuals who generate or respond to economic opportunities that create value for both these individuals and society (Hills 1994, 16). Innovation is a key feature of entrepreneurship (Schumpeter 1934). The following five criteria have proven useful in measuring economic innovation: (1) introduction of new goods; (2) introduction of new methods of production; (3) opening of new markets; (4) opening new sources of supply; and (5) implementing industrial reorganization (Carland et al. 1984). Furthermore, the uncertainty inherent in entrepreneurship makes risk taking an important element of entrepreneurship (Carland, Hoy, and Carland 1988). As Hills (1994, 15) states, ... it is considerably more accurate to say that entrepreneurship involves uncertainty and, almost always, the management of risk. In China to date, entrepreneurial ventures exist mainly in non-state economic sectors. Chow (1995) notes that to reform its centrally-planned economy, the Chinese government has successfully used market forces of entry and competition by creating a fast-growing non-state economic sector. Certain entrepreneurial characteristics have also developed in the state-owned economic sector with the passing of the State Enterprise Law and the Bankruptcy Law and with the adoption of the Contract Responsibility System. However, most state-owned enterprises still cannot be regarded as entrepreneurial ventures. For instance, even though many state-owned enterprises lose money, subsidies from the government allow them to survive. Therefore, the risk of bankruptcy is minimal. Simply stated, since state-owned enterprises are protected by the government to the extent that they bear few risks, they cannot be regarded as true entrepreneurial ventures. In contrast, Russian entrepreneurial ventures exist in the non-state economic sector, as well as the rapidly privatizing, formerly state-owned sector. As Russia's privatization plan moves forward, the risks for state-owned and formerly state-owned enterprises are increasing. According to Kranz (1994, 46): The rush of equity issues, coupled with a tough new bankruptcy law and cuts in state subsidies, is likely to spark a dramatic restructuring of Russia's economy. It marks the beginning of a new capitalist discipline that is certain to stir up Russia's old ways more than ever. As companies try to attract investors, layoffs and management shake-ups will be inevitable . …
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