Creativity Innovation and Entrepreneurship in China

Management and Organization Review 6:2 175-194
doi: 10.1111/j. 1740-8784.2010.00181.x
Creativity, Innovation, and Entrepreneurship

in China
Phillip Phan,1 Jing Zhou,2 and Eric Abrahamson 3

1[
Johns Hopkins University, USA, 2Rice University, USA, and ''Columbia University, USA
ABSTRACT As the largest and fastest growing transition economy in the world, China's
entrance onto the global stage has been swift and dramatic. As such, almost every facet
of entrepreneurship, from the identification of nascent opportunities to the challenges
of managing triple-digit growth to the transformation of firms from dying to emerging
industries, can be studied as natural experiments. The four papers in this issue are
dedicated to exploring entrepreneurial innovation in the Chinese private economy.
They include two clinical studies, one on the impact of the Beijing Olympics on
entrepreneurship, and the other on the co-evolution oCguanxi networks and
entrepreneurial growth. Two studies test theories explaining the organizational drivers
of innovation and entrepreneurship. In the best traditions, these four studies offer
theoretical insights on the broader implications of entrepreneurship research in the
Chinese context. We locate the findings offered by these four papers in the systems,
organizational and social contexts of creativity, innovation, and entrepreneurship
research. Finally, we offer some suggestions for future research and ways in which
advances in the theoretical conversation should proceed.
KEYWORDS creativity, entrepreneurship, guaim, innovation, mega-event
INTRODUCTION
In the business disciplines, research in e n t r e p r e n e u r s h i p distinguishes itself by its

concern with the interactions between individuals, processes, a n d institutions in the
emergence of new organizations, a n d new organizational forms that create eco-
nomic wealth. This entrepreneurial process is defined as the cycle of value creation
involving opportunity recognition, resource acquisition a n d assembly, a n d imple-
mentation, such as new p r o d u c t introductions a n d business launches (Gartner,
1990). Entrepreneurship is therefore a multilevel p h e n o m e n o n that begins widi the
combination of h u m a n creativity, financial resources, a n d technological capital;
fostering the discovery a n d establishment of new ways to organize production
processes a n d new institutional forms; a n d leading to such outcomes as venture
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176 P. Phan et al.
growth and new ventures. New venture growth is a defining characteristic of

developing economies. This special research forum is devoted to understanding
entrepreneurship, innovation, and creativity in a rapidly developing economy,
China.
In the 2000s, China reported double-digit annual gross domestic product
(GDP) growth, so that by 2007 annualized GDP growth was 11.5 percent (National
Bureau of Statistics of the People's Republic of China, 2008: 865). This is up from
an annual average of 6 percent between 1975 and 2000 (Romer, 2008). Many
papers have been written about the reasons for this growth rate, pointing to the
common reason of the market-oriented reforms since 1979 (Fu, 2010). Market-
oriented reforms have, over time, included such things as the privatization of the
state sector, the establishment and increased enforcement of private property
rights, and the relaxation of state control over the movement of private capital. The
movement towards market capitalism increases the incentive to accumulate private
capital as the returns from risk-taking accrue directly to the capital owner. Since
the application of capital to production takes the form of technology, the increase
in technological intensity leverages entrepreneurial effort, which in turn allows
even greater productivity and the accumulation of more capital. In China, the
Central Committee's decision to accelerate investment in innovation to 1.5 percent
of GDP in the 10th Five-Year Plan (Central Committee of the People's Republic
of China, 2001), a classic application of endogenous growth principals (Romer,
1990), signalled the importance of innovation to the future of the country. Apart
from the efficiencies created by the restructuring of the state sector, growth of this
nature can also be traced to the increase in entrepreneurial intensity in the private
sector (Wong, Ho, & Autio, 2005).
While entrepreneurship as an economic activity has been an important engine
of growth of the Chinese economy, entrepreneurship research in China is still in
an infancy stage. In a review of the literature from 11 leading English-language
journals over 26 years of research, Yang and Li (2008) found 68 articles that
focused on entrepreneurship in China. In their review, they found the research
divided into macro, firm level, and individual levels of analyses. Not surprisingly,
they found that a majority of the research focused on the context in which
opportunities emerged. This context drew heavily from the notion of China as an
emerging economy, and hence centered on the theme of opportunity as resulting
from environmental turbulence. As a result, literature on institutional entre-
preneurship has recendy emerged, which refers to entrepreneurial actions taken
by public sector entities (Child, Lu, & Tsai, 2007; Krug, 2002; Li, Feng, & Jiang,
2006; Luo, Zhou, & Liu, 2005; Nee & Cao, 2005).
Yang and Li (2008) found that only two articles focus on innovation-intensive
firms, though many other studies have looked at such aspects of innovation as new
product development (Song, Di Benedetto, & Song, 2010), financing and venture
capital (Au & Kwan, 2009; Batjargal, 2007a; Ding, Nowak, & Zhang, 2010; Li,
©2010 The International Association for Chinese Management Research
Entrepreneurial Innovation and Creativity 177
Meng, Wang, & Zhou, 2008; Tan, Zhang, & Xia, 2008; Wright, 2007; Zhang,
Souitaris, Soh, & Wong, 2008), organizational learning (Filatotchev, Liu, Buck, &
Wright, 2009; Li, Schulze, & Li, 2009), and social networking as a mediod of
resource acquisition (Baron & Tang, 2009; Batjargal, 2007b,c; Fu, Tsui, & Dess,
2006; Li et al., 2008; Siu & Bao, 2008).
In traditional economic development models, increasing the ratio of invest-
ment in technological capital to investment in human capital creates the capacity
for a community to defer consumption and accumulate capital to increase the
scale of production. The innovation that follows forms the basis for Venkatara-
man's (2004) virtuous cycle of entrepreneurship. The purpose of this special issue
was to see if a similar dynamic occurred with respect to questions of creativity,
innovation, and entrepreneurship in China. We had expected authors to apply a
relatively well-developed body of literature on entrepreneurship in emerging
regions to ground their investigation. Yet, what we published is an interesting-
array of papers that focused on issues such as how guanxi influences the entre-
preneurship process, innovation surrounding mega-events such as the Beijing
Olympics, inward flows of foreign knowledge, and endogenous firm innovation
that, taken together, point to the uniqueness of the Chinese economy as a setting
for entrepreneurship research.
The fact that China is the largest transition economy in the world (Prasad, 2004)
implies that almost every aspect of entrepreneurship, from the identification of
nascent technologies to the challenges of managing triple-digit growth firms to the
mass exit of firms from dying industries to emerging industries, can be studied as
natural experiments in China. This opportunity is seldom replicated anywhere
in the world. In addition, the Chinese economy, because of the sharp distinctions
between urban and rural areas, cannot be viewed as a homogenous construct.
Instead, it is best studied as an agglomeration of regions. Therefore, studies com-
paring the regions in China could be applied to future studies in free trade zones,
and other politically constructed economic clusters such as the European Union.
In the latter, the cultural roadblocks hindering the free movement of goods
and information, in spite of a political union, are similar to the legal roadblocks
hindering the free movement of labour and goods across provinces in China.
The four papers in this issue of MOR are dedicated to exploring innovation-
driven entrepreneurship in the context of the emerging Chinese private economy.
However, in addition to offering a testable theory, in-depth clinical studies, such as
those by Dollinger, Li, and Mooney (2010) on mega-events, and Guo and Miller
(2010) on guanxi, exemplify the appropriate form of research. Their findings offer
counterintuitive perspectives on received theory when applied to new phenomena.
For example, even in an era of global competition, Dollinger et al. (2010) show that
location remains central to competitive success. Because the theories on clusters
derive from work done in developed economies, their contribution goes beyond
simple notions of clusters to invoke network effects resulting from the relatio-
178 P. Phan et al.
nal capital generated by institutional and economic shocks typical of emerging

economies. In contrast, the papers by Li, Lee, Li, and Liu (2010) and Li, Chen, and
Shapiro (2010) take a theory-testing approach to investigating the organizational-
level drivers of innovation and entrepreneurship. In the best traditions, these four
papers offer rich theoretical insights, as they explore the broader implications of
their findings in the Chinese context. Therefore, it would be possible to take their
discussion on future research to a non-Chinese context for empirical verification. It
is in this spirit that we place the authors' research in the larger extant literature, so
that we can offer comments that go beyond the impact on future entrepreneurship,
innovation, or creativity research in China.
In the next few sections, we will discuss the three contexts (systems, organiza-
tional, and social) of entrepreneurship, as they have been broadly framed in the
literature. We embed the discussion of the four papers in this special issue by
showing how they relate to and add new knowledge to the literature. Then, we
discuss some future research questions and suggest possible research directions, in
terms of further studies of entrepreneurship in China with special attention to how
such investigations can add to the general literature.
THE THREE C O N T E X T S OF ENTREPRENEURSHIP
The S y s t e m s Context of Entrepreneurship
Shane and Venkataraman (2000) have argued that theories of the firm that are
derived from contracting theory, evolution theory, and the resource-based view do
not accurately describe the processes by which new-to-the-world ventures emerge.
This is because the theories contemplate existing institutional arrangements with
known rules and norms. While extant theories of the firm could be adapted to a
theory of the emergent firm (e.g., as a response to market failure), they must explain
why firms do not emerge even when conditions allow or do so even when condi-
tions are unfavourable (Shane & Venkataraman, 2000). For example, robust busi-
nesses that emerge in war zones provide counterfactual examples to the notion that
industrial munificence is a necessary condition for business formation. [l]
These theories must account for population and idiosyncratic emergence, which
means that they must explain the coexistence of established and emergent firms
experiencing similar economic and sociological conditions. In highly concentrated
markets such as those controlled by state owned enterprises in China, one would
not expect a concomitant rise in the population of entrepreneurial firms. Why
and how this is happening in China can only be properly understood in terms of
innovation in the macroeconomic environment.
The macroeconomic environment is characterized by what Schumpeter (1934:
67) calls gales of creative destruction, in which the entrepreneur 'reforms
or revolutionizes the pattern of production . . . and re-organize[s] an industry'.
These reorganizations, according to Schumpeter (1934), are driven by some

type of exogenous technological or institutional shock that makes entire indus-
tries obsolete while simultaneously creating new communities of firms. This
happens because the basis on which economic rents is created has changed. Yet,
entrepreneurship research typically relies on standard linear models and is less
able to deal with notions of path dependence, and recursive interactions (Phan,
2004).
Venkataraman (2004) explains how the institutional and resource endowment
conditions in a defined geographic area create the market opportunities that form
the basis for new firm formation. These opportunities can manifest as rent streams
that increase the value of the asset endowments (real estate, transportation net-
works, natural resource pools, or information) in an area or new ways of organizing
existing productive assets. As a consequence, starting conditions determine the
prospects for sustainable economic growth in a region.
However, this paradigm needs to be further explicated. For example, anyone
who knows the USA well knows that one united state does not exist, but rather
substantially different states united under one central government. Likewise, there
exists only one central Chinese government that unites provinces that differ sub-
stantially from one another. So that comparing the condition for entrepreneurial
innovation in Shanghai and Beijing, for instance, is likely to reveal very different
patterns of development and change (Liu & White, 2001). The problems of geo-
graphic and temporal heterogeneity are particularly important because in China
entrepreneurial innovation itself has begun to occur at different rates, in different
forms, and within different parts of China. Put differendy, the research on entre-
preneurial innovation in China has gone beyond such work as Lin's (1992) research
on the diffusion of innovative hybrid rice, which completely ignores the high
likelihood that diffusion rates might differ substantially in time periods or different
parts of China.
Venkataraman's (2004) 'virtuous cycle' does not explain what happens when
the economic and social relationships that characterize exchange in a region
become destabilized because of an exogenous shock. Dollinger et al.'s (2010) paper
attempts to discuss this possibility. The authors consider the circumstances that can
drive innovation and entrepreneurship as a result of new relationships, alliances,
and networks from a mega-event, the Beijing Olympics. The authors argue that
the properties of mega-events, namely, periodicity, location, governance structure,
media coverage, network connectivity, and membership rules hold special lessons
for those studying how Schumpeterian shocks impact innovation.
It turns out that shocks do not in themselves create the rents that encourage
risk-taking and innovation. Instead, a mega-event reorganizes the basis for network
relationships and increases the value of existing relational capital and the incentives
to innovate. They argue that in spite of the monopoly power of the International
Olympic Committee (IOC) to set prices and quantity for services and products,
© 2010 The International Association for Chinese Management Research
180 P. Phan et al.
entrepreneurs still find rent-creating opportunities because of the pre-existing

relationships they may have with the local organizing committee. In their model,
after an opportunity has been identified, the entrepreneurial process is not about
the assembly of resources but the building of relationships to become included as
a preferred vendor to the IOC. Once in the network, their exchange relationship
becomes a bilateral monopoly.
The authors highlight the importance of relational capital for the entrepreneur
by assuming the asymmetric bargaining power of the I O C over service and
product providers in the network. Using the resource-based view of the firm, the
authors conjecture that relational capital is a form of isolating mechanisms that
increases the value of the entrepreneur's resource bundles by conferring preferred
access to the IOC. However, the value of this capital rapidly diminishes as scarcity,
due to piracy and copyright violations, and time compression increases nearer to
the events.
The fact that this study focused on the Beijing Olympics begs the question
whether similar conclusions can be drawn about other Olympic events or mega-
events in general. The political significance of the event as a 'coming out' party for
China may have something to do with the tight coupling between the local Olympic
Committee and the service providers, conferring more of an 'insider' status to those
with more relational capital. Having said this, the study is one example in which the
findings inductively derived from an event in China may generalize quite well to
events around the world. Systems of social exchange exist in all economies and the
theoretical framework provided by this study to understand the role of the entre-
preneur in such milieu, represents a good advance in the literature.
The Organizational Context of Entrepreneurship
Micro-level theories of entrepreneurship look for systematic psychological differ-

ences between individuals to explain why some are more likely to engage in
entrepreneurship. This perspective assumes relatively stable environments such
that when entrepreneurial activity is observed, individual agency is implicated
(Eckhardt & Shane, 2003). Hence, for example, we find that those individuals who
are less bothered by uncertainty (Khilstrom & LafTont, 1979) or possess higher
locus of control (Baron, 2000) exhibit a greater tendency towards entrepre-
neurship. Yet, we now know from decades of research that individual differences
explain only a small fraction of the observed entrepreneurial intensity in economies
(cf. Baron, 2000; Carroll & Mosakowski, 1987). Instead, it is the interactions between
individual differences and the environmental context in which individuals and
groups find themselves that better explain the incidences of entrepreneurship
(Baron & Tang, 2009). Such interactions are then posited to drive the genesis and
identification of opportunities, so that entrepreneurship is more properly defined
as those activities occurring at the intersection of individual differences and the
environment: the processes of discovery, evaluation, and exploitation of opportu-

nities (Venkataraman, 1997).
In entrepreneurship therefore discovery is the formation of beliefs and percep-
tions of means-ends relationships yet to be realized in the marketplace (Eckhardt
& Shane, 2003). These relationships hint at the reorganization of production with
the potential to increase economic welfare. The individual capacity to combine
ideas has been a main focus of psychologists in their attempts to understand
creative impulses (Ward, 2004). Novel ideas do not occur fully formed in the brains
of individuals but are rooted in existing knowledge bases. The process of concep-
tual recombination, where existing ideas and concepts are mentally merged to
derive new insights or mental models appears to be fundamental to creativity
(Rothenberg, 1979). Creativity, as the cognitive process of discovering new pat-
terns or combinations from familiar ideas, routines, and mental models (Amabile,
1997) is thus the engine that drives entrepreneurial discovery. The search for these
patterns when induced by market discontinuities can form the basis of new ways
of production that foster organizational emergence. Creativity researchers are
aware that the ways problems are formulated can influence the creative process
(Ward, 2004).
Organizational creativity refers to the production of novel and useful ideas
concerning virtually all aspects of the formation and operation of an organization,
such as products, services, work processes, management methods, and business
models. This definition implies that organizational creativity has two essential
elements. First, in business settings, different from artistic creativity, both novelty
and usefulness are 'necessary conditions for an idea to be considered as creative. An
idea that is novel but has little value or practicality would not be judged as creative.
Second, conceptually, creativity is different from innovation, although these two
concepts are related. Whereas creativity focuses on idea production, innovation
focuses on implementation of new and useful ideas. Thus, creativity is often a
starting point for innovation (Amabile, 1988; Oldham & Cummings, 1996). Cre-
ativity has been examined primarily at the individual level (Amabile, 1988; Gong,
Huang, & Farh, 2009) and the group level (Maddux & Galinsky, 2009), although
it is also possible, and may even be desirable, to investigate it at the organizational
level (Shalley, Zhou, & Oldham, 2004; Woodman, Sawyer, & Griffin, 1993).
The research on organizational creativity has a fairly rich history, which has
been reviewed elsewhere. For example, Zhou and Shalley (2003) published one of
the most comprehensive reviews to date, which contains three aspects of creativity
research: theories, research methods, and empirical studies. It also presents impor-
tant research questions that are not yet well understood in the creativity literature.
Shalley et al. (2004) not only offer a review and critique of the extant literature, but
also devote considerable attention to highlighting directions for future research.
Anderson, De Dreu, and Nijstad (2004) provide a review and critique that chal-
lenges the routinization of creativity and innovation research. They introduce an
182 P. Phan et al.
alternative conceptual framework to re-direct and guide future research. Zhou and
Shalley (2003) organize extant creativity literature into three categories, each with
its unique emphasis on one broad aspect of psychological mechanisms for crea-
tivity: affective, cognitive, and motivational approaches. Hennessey and Amabile
(2010) review psychological research on creativity from a broad, interdisciplinary
perspective (e.g., from the neurological basis of creativity to the societal influences
on creativity), instead of solely focusing on the organizational creativity literature.
Yet, specific research on creativity in China is still lacking. In this special issue,
while creativity does not appear explicidy in the models and theorizing, it is implied
in the two papers dealing with innovation. These two papers investigate the core
ingredients for creative innovation, which is the knowledge base of the firm and its
organizational structure fostering exploitation (as distinct from exploration) within
the firm.
Li, Lee, Li, and Liu's (2010) paper illustrates these issues by examining how firms
utilize organizational control systems to enhance endogenous innovation.
In their paper, types of organizational controls are hypothesized to influence the
degree to which knowledge is exploited, which in turn leads to endogenous inno-
vation. They first propose, quite logically, that codifying knowledge, which reduces
information noise, enables more efficient exploitation. They find that clan control
(control through informal values and norms) moderates the positive relationship
between the codification of knowledge and its exploitation but does not impact
innovation. Therefore, while employees' basic grasp of a firm's knowledge base
is a necessary condition for exploitation, it is not sufficient for innovation. Coun-
terintuitively, they find that the imposition of behaviour controls such as the
formalization of work procedures and routines positively impacts the relationship
between knowledge exploitation and innovation. Taken together, their findings
at the firm level are consistent with that at the individual level by Mumford,
Baughman, Maher, Costanza, and Supinski (1997), who find that the outcome of
conceptual combination depends on what individuals are instructed to consider.
Creativity leads to innovation when creative energies are directed in specific
directions. Absent this, creativity is simply chaos (Ward, 2004).
Li, Lee, Li, and Liu's (2010) study suggests that China's continuing economic
development, if it is to shift from capital formation due to foreign direct investment
to endogenous innovation, can only be sustained if entrepreneurial firms can
successfully build and implement the appropriate organizational controls to exploit
internal knowledge. This organizational context has so far been missing in much of
the creativity-innovation research. This study in the Chinese context offers an
important contribution to the general organizational-level innovation-
entrepreneurship literature.
Related to Li, Lee, Li, and Liu's (2010) paper, Li, Chen, and Shapiro (2010)
investigate the role of exogenous (foreign) knowledge in fostering endogenous
product innovation. They look at how the firm's absorptive capacity, built from
investments in R&D and marketing, can enhance exogenous knowledge exploita-
tion. Related to the research work on creativity, Li, Chen, and Shapiro (2010) find
that access to knowledge (endogenous or exogenous) is critical for innovation. In
their work, a firm's involvement in inward foreign direct investment and exporting
activities serves as a conduit for the accumulation of foreign knowledge. Combined
with theoretical perspectives from the research on geographic clusters, they find
that domestic firms in cities with concentrated foreign innovative activities benefit
from knowledge spillovers. They also find that those firms that engage in more
exporting learn more quickly about the needs of foreign markets, which guides
their innovation initiatives. The firms that engage in more R&D are also more
likely to develop the organizational capacity to more efficiently recognize, absorb,
and adapt useful foreign knowledge embedded in external channels, such as
innovation clusters and from exporting. This study in the Chinese context adds to
the literature on knowledge acquisition as a strategy for accelerating innovation.
The Social Context of Entrepreneurship
Entrepreneurs are those 'who identify opportunities and start new companies to
develop them' (Baron, 2000: 15), so that simply recognizing new patterns is not
sufficient to be an entrepreneur. Indeed, entrepreneurial creativity is 'the genera-
tion and implementation of. . . ideas to establish a new venture' (Amabile, 1997:
20). Hence, entrepreneurial creativity is a complex phenomenon that includes
cognitive processes, individual motivation, knowledge and personality, individual
and team decision making, and social and economic influences (Sternberg &
Lubart, 1991). More recendy, creativity is best described as a meta-construct
consisting of individual differences, social and resource networks, and team
dynamics (cf. Zhou & Shalley, 2008). In order for a firm to emerge, the entrepre-
neur has to convince others that his/her ideas are worth the support of other
resource providers. Therefore, for there to be value creation, the results of creativ-
ity have to extend into the entrepreneur's social network.
In China, an individual's social network manifests itself in the form of guanxi
(literally, closed system ofrelationships). Distinct from the Western concept of social ties,
guanxi is more appropriately viewed as a form of social collateral with value
(or bonding social capital) because the set of implied (hence, 'closed' to outsiders)
reciprocation rules (hence, 'system') makes it difficult to acquire if one does not
understand the rules. The result of guanxi is a network of social obligations. This
social collateral fosters economic exchange without the need for complicated
contingent claims contracts or even mutual trust. Two strangers can have guanxi
if a third party to whom both owe obligations mediates the relationship. Therefore,
an entrepreneur seeking support for his/her creative ideas can exploit guanxi to
rally resource providers without the need to expend large amounts of energy
building personal networks. The literature on guanxi in the entrepreneurial context
© 2 0 1 0 The International Association for Chinese Management Research
184 P. Phan et al.
(e.g., Fu et al., 2006; Li et al., 2008; Tian, Gao, & Cone, 2008) is particularly rich,
given that guanxi in other contexts has been well-studied.
This quintessential Chinese construct is investigated by Guo and Miller (2010)
on its implications for entrepreneurial action. Based on six case studies, Guo and
Miller find that guanxi networks vary in structure, governance, and content with
the evolution of the entrepreneurial process. They find that the usefulness of
guanxi depends on the stage of the entrepreneurial process and that information
can be as valuable a currency of exchange as gifts and favours in knowledge-
intensive industries.
Specific to the Chinese context, the authors find that guanxi with government
officials is not a necessary condition for entrepreneurial success in knowledge-
intensive industries. While this finding is contrary to that of earlier studies (e.g.,
Tjosvold, Peng, Chen, & Su, 2008), it is not surprising if we accept that the value
of guanxi is contextual. The key input in knowledge industries is human capital, over
which the government has less control, rather than financial, location, or physical
capital, over which the government has more control. Therefore, guanxi derived
from information sharing is less likely to result from relationships with government
officials.
Taken together, this study confirms the importance of social exchange in entre-
preneurial action. Although their study does not compare China with other emerg-
ing economies, it is reasonable to conclude that wherever economic exchange is
less enforceable with legal contracts, social collateral can act as a hedge against
moral hazard. Their work also adds to the general literature on entrepreneurial
teams, in that they demonstrate the importance of coordinated action, via guanxi
networks, in the creation of new enterprises, and links individual agency to group
action.
SUGGESTIONS FOR FUTURE RESEARCH
There are at least three challenges for researchers studying entrepreneurial inno-
vation in China. First, entrepreneurial innovation may be innovative because it
is perceived as new to the market or industry or because it actually differs from
the state-of-the-art. There are examples of both in China. Therefore, researchers
need to carefully define what one means by innovation. Without a common
understanding, studies on entrepreneurial innovation in China may not be com-
pared with each other, which limits theory building and the accumulation of
knowledge.
Second, entrepreneurial innovation might be efficient or effective, or they may
not be so. Defining and measuring the appropriate dependent variable is therefore
important. We know that not all innovations are efficient (the increase in the ratio
of inputs to outputs) or effective (improvement in some characteristic of the inno-
vation). Yet, the literature on entrepreneurial innovation and innovation diffusion
in China has not contemplated the possibility that not all innovations lead to
efficiency or effectiveness. Therefore, we need research on ineffective innovations
and their diffusion; research that might highlight the externalities of certain
Chinese innovations or the consumer and reputational harm created by innovative
toys and food products.
Third, the innovation (process, organizational form, technology, market domain
focus, products, services, and so on) that forms the basis for new firm creation
may differ by context. This has not been well-explored in China. Entrepreneurial
innovation research can focus on managerial (e.g., processes and organizational
forms) and non-managerial (e.g., products and services) outcomes. The literature
on entrepreneurial innovation in China seems to ignore managerial innovations,
as they pertain to entrepreneurial firms. Research on managerial innovations in
entrepreneurial firms in India, for instance, reveals entire new ways of managing
organizations that are native to India (Dutz, 2007). The research on Chinese
managerial innovations needs to be more fully developed.
We also encourage future researchers to aim for paradigmatic, rather than
micro-theoretical explanations when inducing theory about entrepreneurship in
China. The fact that it is a transition economy provides many opportunities for
natural experiments. For example, the adoption of private property rights regimes
when none existed previously provides an opportunity to test the relationship
between property rights and risk-taking. In the same vein, we urge future resear-
chers to employ temporally oriented empirical techniques such as critical event
studies, panel data regression estimations, and repeated treatment experimental
designs. These techniques may be particularly useful for research in China, given
the many innovations, exploitative or exploratory, in Chinese firms in response to
the rapid changes in the industrial, economic, and policy environments. Below, we
offer specific suggestions for future research within each of the three contexts of
entrepreneurship.
The S y s t e m s Context of Entrepreneurship
The findings of the four papers contained in this issue raise a number of questions
that merit further research. First, studies of recently emerged entrepreneurial
regions from around the world — Taiwan, Ireland, Israel, Korea, and Singapore
— have underscored the role of government in establishing the appropriate insti-
tutional environment for the creation and exploitation of opportunities. In this set
of papers, government is not only absent in the discussions, but Guo and Miller
(2010) even imply that, under certain circumstances, it is unimportant. While it is
obvious that the role of government tends to decline when the size of the private
sector increases (Huang, 2003), there may be deeper implications of this trend.
We know that non-state owned enterprise (SOE) managers tend to have fewer
government ties than SOE managers (Li et al., 2008). This may represent a
186 P. Phan et al.
liability to non-SOE firms. However, it may also imply that the role of govern-
ment in knowledge-intensive industries is not as critical as in, say manufacturing,
because the usual reasons that firms interact with the government, e.g., obtaining
permits to operate, zoning, etc., tend to be less relevant in knowledge-intensive
firms.
Yet, the government in China continues to be omnipresent from the village to
the State level (Acs & Dana, 2001; Li et al., 2008; Tian et al., 2008; Tjosvold et al.,
2008). Future research should therefore aim for dynamic models that can demon-
strate the co-evolution of the role of government and the market economy (Sun,
Wright, & Mellahi, 2010). Similar to endogenous growth models in the develop-
mental economics literature (cf. Romer, 2008), these approaches are particularly
powerful in explaining the role of entrepreneurship in the sustainability of an
economic system. We know that strong educational institutions, good physical
infrastructure, a supportive financial services industry, and favourable cultural
attitudes towards entrepreneurship tend to render the role of government as
advocate of entrepreneurship less critical. Hence, we should expect that the devel-
opment of the Chinese institutional context would accompany a decline in political
influence in the market economy. Yet, in the case of China, because the govern-
ment is concerned about social stability as much as it is about economic growth, the
booms and busts that characterize a entrepreneurially intensive economy may
provide unique opportunities to study the interactions between political and eco-
nomic systems that are interdependent and yet can produce conflicting social and
economic outcomes.
We know that in traditional models of entrepreneurial development, the
government's role is to provide the initial resources to trigger sector development,
which then becomes attractive for private capital accumulation. More recently,
institutional models discuss the need for robust intellectual property regimes to
foster innovation. These points of view have to be reconciled so that future studies
should examine the role of village and provincial government influences, perhaps
employing an evolutionary approach to account for the varying degrees of involve-
ment over the stage of development of a region.
Concomitant with further study on the role of government in entrepreneurship,
we urge more research on the problem of social welfare and entrepreneurship.
There is a wealth of literature on entrepreneurship that tries to understand the
relationship between entrepreneurship and social welfare in emerging economies
(Acs & Dana, 2001; Baumol, 1990; Chow, Fung, & Ngo, 2001; Djankov, Qian,
Roland, & Zhuravskaya, 2006; Nee & Cao, 2005; Pistrui, Huang, Oksoy, Zhao, &
Welsch, 2001; Tan, 2008). In China, the question is both relevant and important
because the emergence of entrepreneurship in the private economy, and compe-
tition for capital with the state sector, will impact economic development, social
welfare, and individual choices to engage in risk-taking. Such research in China
may yield important contributions to this literature.
Another area of potentially fruitful research is to study entrepreneurship and
innovation in rural areas. What are the entrepreneurial capacity-building initia-
tives taking place to endow farmers and rural artisans with the skills they need to
innovate and found sustainable businesses? Research can also analyze the role of
technology in fostering innovation, such as the impact on rural entrepreneurship
with the dramatic increase in wireless telecommunication penetration.
The Organizational Context of Entrepreneurship
The two papers investigating knowledge exploitation discuss the importance of

absorptive capacity for innovation success. However, absorptive capacity can be a
stock, an endowment property of a firm, or a flow, which is the result of continual
investments in human and technological capital (Khilstrom & Laffont, 1979;
Romer, 1990). We suggest that future studies focus on the conditions under which
entrepreneurial firms are incentivized to create absorptive capacity (flow) since an
entrepreneur with a shortened investment horizon, particularly in emerging econo-
mies, will likely under-invest in assets that are unlikely to yield benefits in the time
frame of the entrepreneur's tenure. |2] Therefore, potential dependent variables in
such studies could be firm survival beyond the start-up stage, the sustainability of
the initial business model, or the evolution of business models as firms grow and
develop.
To date, only a small number of studies (e.g., Chen & Aryee, 2007; Zhang &
Bartol, 2010) have been conducted to examine what factors promote or inhibit
employee or team creativity in Chinese organizations. Therefore, this is an exciting
area for future research, because many opportunities remain for significant con-
ceptual breakthroughs and rigorous empirical investigation. However, the use
of surveys is unlikely to add insight to studies on human creativity. Instead, such
studies can only be properly conducted with controlled experiments. In such
research designs, subjects are placed under various conditions (such as social
conformity, cognitive dissonance, physical stress, and so on) and observed as they
perform tasks with varying degrees of creative challenge. In the USA, this has been
a major research paradigm (Mumford, 2003). Similar work should be done in
China, given that the different cultural context in which creativity is expressed may
yield insights that could contribute to the development of a theory of creativity
that may be more relevant to Chinese employees and teams (Barney & Zhang,
2009; Tsui, 2009). At the individual level of analysis, we call for a comprehensive
embrace of experimental research methodologies in studying creativity among
Chinese employees and in Chinese workgroups.
At the organizational level, Zhou and Shalley (2008) have suggested several
avenues to broaden the research. These include multilevel models and cross-
cultural research. More robust theorizing is likely to result by pooling the extant
insights from the research in entrepreneurship, human resource management,
188 P. Phan et al.
innovation, and strategy. We encourage more research on organizational creativity

and innovation in China. Such research provides us the opportunity to theorize
about the causes and impact of innovation at the organizational level, and hence
adds to our understanding of the entrepreneurial phenomenon in general and in
China. Studies on the relationship between creativity at the individual level and
entrepreneurship at the societal level (Ward, 2004; Zhou, 2008) will also make a
valuable contribution to the general literature on entrepreneurship.
To facilitate implementation of some of our suggestions on studying creativity in
Chinese organizations, researchers may consider three avenues: (i) researchers may
investigate antecedents of creativity from a universal perspective as exemplified
by the work of Gong et al. (2009), Zhou, Shin, Brass, Choi, and Zhang (2009), and
Zhang and Bartol (2010); (ii) researchers may mix cultural-general and cultural-
specific approaches as exemplified by the studies of Farmer, Tierney, and Kung-
Mclntyre (2003) and Chen and Aryee (2007); and (iii) researchers may conduct
comparative research contrasting antecedents of creativity in organizational set-
tings in the East vs. those in the West. In the last avenue, we have not found any
work in the literature. This represents a green field into which researchers can
successfully sow their ideas.
The Social Context of Entrepreneurship
Research in China is already rich in the area of social networks (guanxi and other
forms of networking), and therefore, meaningful contributions in this line of inquiry
may be limited. However, there has now emerged some research on the social
responsibility and ethics of Chinese entrepreneurs (Tian et al., 2008; Zu & Song,
2009). Social responsibility is an ethical perspective that views a business as embed-
ded in the social system and therefore the firm must contemplate its non-economic
role in the welfare of the communities in which it operates (Tian et al., 2008).
Normative conceptions of social responsibility argue that when businesses take a
proactive stance to act socially responsible, they pre-empt the role of government
as a monitor and hence assure themselves the freedom to operate (Carpenter,
Bauer, & Erdogan, 2009). We suggest a more concerted attempt at understanding
the emergence and evolution of an entrepreneur's engagement with his/her social
environment as a possible avenue for further research. China provides an inter-
esting setting for such questions, because guanxi networks tend to be fairly tight,
whereas the type of socially responsible actions taken by philanthropists benefits a
much broader section of the community. The transition of an entrepreneur's guanxi
networks to philanthropic (generalized) networks could be a meaningful way to
extend the extant research. Perhaps, an entrepreneur's guanxi network is impacted
by his/her philanthropic network, so that the right approach to theorizing about
guanxi may be evolutionary rather than static, similar to the study by Guo and
Miller published in this issue.
In summary, in this special issue, we have taken a point of view that there
are three broad contexts to the phenomenon of entrepreneurship in China. It is
not the only way one can organize the extant research or direct future research on
entrepreneurship. However, it is a flexible framework. For example, one can
embed institutional concerns such as private property rights and the drive to
accumulate capital into questions on why and when Chinese entrepreneurs inno-
vate and whether their creative tendencies will lead to positive (new venturing) or
negative (corporate malfeasance) outcomes (Baumol, 1990).
More importantly, we must recognize the possibility that China is not just
another context in which one can apply theories developed somewhere else. For
example, many Chinese proverbs exemplify the dialectic thinking of people in the
Chinese culture and these proverbs may shed insight on the potential for creativity
in this culture. Take for example, the Chinese words for crisis 'Weiji' (^i-tH). The
pairing of the two characters J& a n d -HI jointly denote crisis with the former
character denoting threat and the later opportunity. Now consider the character
pairing for revolution (j=pL-ppf). The first character denotes transformation whereas
the second denotes order. Interestingly, Tsou (1986) noted that the blueprint of the
Cultural Revolution was based on the order it replaced. Following our earlier
discussion on the potential unique contributions of entrepreneurship research in
China, we may discover that the Chinese language itself might be generative of
constructs with implications for entrepreneurial innovation.
CONCLUSION
The extremely rapid rate of change of entrepreneurial innovation in China creates

a concomitant need for optimally timely and relevant scientific business theory and
research. The four papers in this special issue are excellent examples of rigorous
research at the highest standards of scholarship. They offer new theoretical insights
with potential managerial and policy implications. Given the variety of inductive
and deductive approaches, the four papers in this special issue illustrate the type
of rigorous work to which future researchers can aspire. We hope that this special
issue will stimulate future investigations into creativity, innovation, and entrepre-
neurship in China and beyond.
NOTES
[1] Not temporary enterprises that arise from arbitrage opportunities ('black market'), since these
appropriate, not create economic value. Instead, for example, consider laundry services catering
to soldiers.
[2] Because rapid shifts in the institutional and industrial contexts characterized by emerging
economics arc likely to make economic models obsolete more quickly than those in developed
economics.
190 P. Phan et al.
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Phillip Phan ([email protected]) is Professor and Vice Dean for Faculty

and Research at the Johns Hopkins University, Carey Business School.
He received his Ph.D. in Strategic Management from the University of
Washington, Seattle. His area of research focuses on entrepreneurship
and corporate governance. Professor Phan has published more than 80
peer-reviewed research articles in journals such as the Academy of
Management Journal, Corporate Governance, Journal of Business Venturing, Journal of
International Business Studies, Journal of Management, and Research Policy. His
books include Tlieoretical Advances in Family Enterprise Research (InfoAge Press),
Entrepreneurship and Economic Development in Emerging Regions (Edward Elgar),
and Taking Back the Boardroom: Thriving as a Director in the 21st Century
(Imperial College Press). He served two terms on the editorial review board
of the Academy of Management Journal, and is now Associate Editor for the
Journal of Business Venturing, Journal of Financial Stability, and Journal of
Technology Transfer.
J i n g Zhou ([email protected]) is Houston Endowment Professor of
Management in the Jesse H.Jones Graduate School of Business at Rice
University. She received her Ph.D. in Organizational Behavior from the
University of Illinois at Urbana-Champaign. Professor Zhou's current
research interests include contextual factors that promote or inhibit employee
creativity and innovation. Prior to joining the Jones School at Rice
University, she was Associate Professor and Mays Fellow in the Management
Department at the Mays Business School at Texas A&M University.
Professor Zhou is an associate editor adjournal of Applied Psychology.
194 P. Phan et al.
Eric A b r a h a m s o n ([email protected]) is the Hughie E. Mills Professor

of Business at Columbia Business School. He holds a Ph.D. in Organization
Theory from New York University. Professor Abrahamson's research is
on the innovation diffusion of business techniques, bandwagons,
interorganizational culture, and disorganized systems. He is a past consulting
editor for the Academy of Management Review and has published numerous
articles in such journals as the Academy of Management Review, Academy of
Management Journal, Administrative Science Quarterly, Harvard Business Review,
Human Relations, Journal of Organizational Behavior, and Organization Science.
Professor Abrahamson is author of the book Change without Pain (Harvard
Business School Press). The book was ranked by Strategy and Business as the
top change management book for 2004. His most recent book, A Perfect Mess,
has been translated into 22 languages.
Manuscript received: April 2, 2010

Final version accepted: May 11, 2010
Accepted by: Anne S. Tsui

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Management and Organization Review 6:2 175-194

doi: 10.1111/j. 1740-8784.2010.00181.x

Creativity, Innovation, and Entrepreneurship

Phillip Phan,1 Jing Zhou,2 and Eric Abrahamson 3

KEYWORDS creativity, entrepreneurship, guaim, innovation, mega-event

In the business disciplines, research in e n t r e p r e n e u r s h i p distinguishes itself by its

© 2 0 1 0 T h e International Association for Chinese Management Research

growth and new ventures. New venture growth is a defining characteristic of

©2010 The International Association for Chinese Management Research

©2010 The International Association for Chinese Management Research

nal capital generated by institutional and economic shocks typical of emerging

THE THREE C O N T E X T S OF ENTREPRENEURSHIP

The S y s t e m s Context of Entrepreneurship

©2010 The International Association for Chinese Management Research

These reorganizations, according to Schumpeter (1934), are driven by some

© 2010 The International Association for Chinese Management Research

entrepreneurs still find rent-creating opportunities because of the pre-existing

The Organizational Context of Entrepreneurship

Micro-level theories of entrepreneurship look for systematic psychological differ-

©2010 The International Association for Chinese Management Research

environment: the processes of discovery, evaluation, and exploitation of opportu-

©2010 The International Association for Chinese Management Research

© 2010 The International Association for Chinese Management Research

The Social Context of Entrepreneurship

© 2 0 1 0 The International Association for Chinese Management Research

SUGGESTIONS FOR FUTURE RESEARCH

©2010 The International Association for Chinese Management Research

The S y s t e m s Context of Entrepreneurship

©2010 The International Association for Chinese Management Research

©2010 The International Association for Chinese Management Research

The Organizational Context of Entrepreneurship

The two papers investigating knowledge exploitation discuss the importance of

© 2010 The International Association for Chinese Management Research

innovation, and strategy. We encourage more research on organizational creativity

The Social Context of Entrepreneurship

©2010 The International Association for Chinese Management Research

The extremely rapid rate of change of entrepreneurial innovation in China creates

© 2010 The International Association for Chinese Management Research

© 2010 The International Association for Chinese Management Research

© 2010 The International Association for Chinese Management Research

Phan, P. H. 2004. Entrepreneurship theory: Possibilities and future directions.yburwa/ of Business

©2010 The International Association for Chinese Management Research

Phillip Phan ([email protected]) is Professor and Vice Dean for Faculty

©2010 The International Association for Chinese Management Research

Eric A b r a h a m s o n ([email protected]) is the Hughie E. Mills Professor

Manuscript received: April 2, 2010

©2010 The International Association for Chinese Management Research

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