Entrepreneurs' Percieved Factors of Success and Barriers-to-Entry for Small Business and Farm Operations in Rural Paraguay

Utah State University All Graduate Theses and Dissertations Graduate Studies 2016 Entrepreneurs' Percieved Factors of Success and Barriers-to-Entry for Small Business and Farm Operations
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Utah State University All Graduate Theses and Dissertations Graduate Studies 2016 Entrepreneurs' Percieved Factors of Success and Barriers-to-Entry for Small Business and Farm Operations in Rural Paraguay Braden J. Jensen Utah State University Follow this and additional works at: Part of the Agricultural Economics Commons, and the Economics Commons Recommended Citation Jensen, Braden J., Entrepreneurs' Percieved Factors of Success and Barriers-to-Entry for Small Business and Farm Operations in Rural Paraguay (2016). All Graduate Theses and Dissertations This Thesis is brought to you for free and open access by the Graduate Studies at It has been accepted for inclusion in All Graduate Theses and Dissertations by an authorized administrator of For more information, please contact ENTREPRENEURS PERCEIVED FACTORS OF SUCCESS AND BARRIERS-TO- ENTRY FOR SMALL BUSINESS AND FARM OPERATIONS IN RURAL PARAGUAY by Braden J. Jensen A thesis submitted in partial fulfillment of the requirements for the degree of MASTER OF SCIENCE in Applied Economics Approved: Kynda Curtis, Ph.D. Major Professor Ryan Bosworth, Ph.D. Committee Member DeeVon Bailey, Ph.D. Committee Member Ruby Ward, Ph.D. Committee Member Chris Fawson, Ph.D. Committee Member Mark McLellan, Ph.D. Vice President for Research and Dean of the School of Graduate Studies UTAH STATE UNIVERSITY Logan, Utah 2016 ii Copyright Braden Jensen 2016 All Rights Reserved ABSTRACT iii Entrepreneurs Perceived Factors of Success and Barriers-To-Entry for Small Business and Farm Operations in Rural Paraguay by Braden J. Jensen, Master of Science Utah State University, 2016 Major Professor: Dr. Kynda R. Curtis Department: Applied Economics Agriculture and commerce activities make up a significant part of Paraguay s economy. The success of these sectors is important for Paraguay s continued development in rural areas where agriculture activities are most prevalent and nonagriculture activities are increasing in demand. Current literature indicates many factors that contribute to success in both business and farming operations; however, little information is available regarding the perception of young entrepreneurs and farmers. Paraguay s young population will need more employment opportunities, many of which may come from new start-up operations. The purpose of this study was to identify attributes and perceptions that affect perceived barriers to business and farming operations in rural areas of Paraguay. This study examined young would-be entrepreneurs and agricultural producers participating in entrepreneurial courses and agribusiness leadership workshops, respectively. Two surveys (small-business and small-farm) were administered to the respective groups. iv Respondents were asked to share their perceptions of common business factors that might or might not contribute to small-enterprise success, along with demographic and characteristic questions. Results of mean test-statistic comparison show that some significant differences exist between the two groups. Some of the most notable differences were larger average family size in the small-farm group, more female participation in the small-business group, a greater average of secondary and postsecondary education in the small-business group, and more respondents reporting more past-experience in the small-farm group. Combining both survey observations and analyzing them with ordered logit models, results suggest that education, training, and past-experience hold a negative correlation with perceived barriers-to-entry to business and farm operations. As education and experience increase, perceptions of barrier factors decrease. This analysis also finds that people who are employed in the private sector are more likely to perceive capital as a barrier-to-entry; whereas land and access to property is more likely to be viewed as a larger hurdle in the agriculture sector. Educating, training and providing experience to young would-be entrepreneurs and farm operators will improve perceptions of business entry. Future research might include perceptions of current government and nonprofit organization programs and initiatives, to better analyze the effectiveness of such rural development efforts. (102 pages) PUBLIC ABSTRACT v Entrepreneurs Perceived Factors of Success and Barriers-To-Entry for Small Business and Farm Operations in Rural Paraguay by Braden J. Jensen Both agriculture and nonagriculture activities are important for Paraguay s economy and its rural development plan. Ensuring opportunity for successful enterprise creation and expansion will facilitate new business entrance, while also growing rural economies. Past research has identified many factors that contribute highly to business and farm operation success, though little information exists about the perceptions of would-be entrepreneurs. This study analyzes perceptions and characteristics of young, would-be entrepreneurs and agriculture producers in rural Paraguay to better understand their views of business/farm success and hurdle factors. Results suggest that increased experience, education and business exposure will decrease perceptions of many barrier factors. Access to capital and land were also more likely to be seen as larger hurdles to business and farm entry by employees and students in the private business and agriculture sectors. Development programs/initiatives that can provide entrepreneurial training, enterprise management experience, and access to capital and land might incentivize more would-be entrepreneurs into small-business/farm operations, while also improving their perceptions of entry. vi DEDICATION I dedicate this thesis to the people and the future of Paraguay. Living amongst, working alongside and learning with the Paraguayan people was an experience that has impacted my life in an unforgettable and positive way. The time and service that I have given to this project I dedicate to them. ACKNOWLEDGMENTS vii I thank Dr. Kynda Curtis for her guidance and mentoring through this project. Through the years and over long distances, Dr. Curtis has inspired me to continue learning and exploring no matter what difficulty or challenge may present itself. With extreme patience, Dr. Curtis has instructed me through this research project and has taught me the importance of providing valuable information that will go on to help the people in the rural areas of Paraguay. I thank Ms. Elisa Echagüe for her leadership and guidance throughout my 27 months of Peace Corps Service in Paraguay. Throughout this, and every other project during my service, she provided me with valuable information and insight on local culture and perspectives. Her level of professionalism and detail that she gives to all projects is amazing. I also thank the other Peace Corps supervisors and administrators for providing me with quality support so that I could stay in the field and continue to work. To Dr. Ryan Bosworth I say thank you for all of the support and expertise through the modeling and econometrics of this project. I thank Dr. Bosworth for the many unscheduled meetings, and for always making time to work with me. I thank Dr. Ruby Ward, Dr. DeeVon Bailey, and Dr. Chris Fawson, for their instruction and teaching with which they have provided me over the years, and I appreciate their participation on my research committee. To my wife, Shalissa Jensen, I express my appreciation and love. I thank her for being my constant companion and for following me to a remote corner of the earth to work with the amazing people and youth of Paraguay. Her enthusiasm, talent and viii kindness are motivating and impressive. I thank her for her constant encouragement and support during the entire the process. Thank you! Braden J. Jensen CONTENTS ix Page ABSTRACT... iii PUBLIC ABSTRACT... v DEDICATION... vi ACKNOWLEDGMENTS... vii LIST OF TABLES... xi LIST OF FIGURES... xii CHAPTER 1. INTRODUCTION... 1 Current Conditions in Paraguay... 3 Economics... 4 Business Environment... 7 Population Demographics... 9 Development Goals Economic Development Literature Review Development Policies Success Factors Perceptions METHODOLOGY AND PROCEDURES Survey and Data Collection Data Description Comparison Entrepreneurs vs. Agricultural Producers Factors of Success... 47 3. MODELING AND ANALYSIS Dependent Variables Variable Set Variable Set Results x 4. DISCUSSION AND CONCLUSION Key Findings Future Study Conclusion REFERENCES... 84 LIST OF TABLES xi Table Page 1 Favorable vs. Unfavorable Characteristics for Rural Development Policy in Paraguay Test-Statistics of the Difference in Means Small-Business and Small-Farm Groups Descriptive Statistics for Dependent Variables Variable Set 1 - Demographics - Descriptive Statistics for Explanatory Variables Variable Set 2 - Perceptions - Descriptive Statistics for Explanatory Variables Ordered Logit Results Variable Set 1-Demographics Test-Statistics of the Different Barrier Dependent Variables Ordered Logit Results Variable Set 2-Perceptions Test-Statistics of the Different Barrier Dependent Variables... 72 LIST OF FIGURES xii Figure Page 1 Structure of the Paraguay Economy, Paraguay Economic Percentage Growth in Gross Domestic Product Latin American Economic Percent Growth in Gross Domestic Product Top 10 Constraints to Firm Investment in Paraguay, Paraguay Population Pyramid Classification of the Population of Paraguay Combined Survey Responses to Perceived Personality Type of Successful Businessmen or Farmers Combined Survey Responses - Perceived Factors that Strongly Correlate to Successful Businessmen or Farmers Combined Survey Responses to Perceived Factors that Weakly Correlate to Successful Businessmen or Farmers Combined Survey Responses of Respondents that Come From a Family Firm or Not... 35 CHAPTER 1 INTRODUCTION Situated between Brazil, Argentina, and Bolivia, Paraguay is known as the heart of South America for its central location on the continent (Rios, 2015). Though not as popular as its three closest neighbors, Paraguay is a country that is rich in heritage, natural resources, and human capital. Typically known for its two official languages (Spanish and Guarani), and its position as a world leader in renewable energy, Paraguay is a developing, landlocked country that is slightly smaller than the geographical size of California (Cardozo, 2012). The country has been plagued with political instability, income inequality and high levels of poverty over the last century, and was under dictator rule for 35 years (Central Intelligence Agency, 2015). Paraguay has a relatively young government, which has since returned to democracy in 1989 (Central Intelligence Agency, 2015). With a young, unstable government, an older generation that is accustomed to strict dictatorship rule, and poor infrastructure, the country s economic growth has been inconsistent and difficult. Rated as the poorest country in South America for many years, Paraguay currently suffers with 34.7% of the population living below the poverty level and a 5.5% unemployment rate (Central Intelligence Agency, 2015). These factors are challenging for any country; however, progress seems to be on the horizon for this Guarani nation. With over a 13% growth in gross domestic product, Paraguay had the fastest growing economy in South America in 2010 and 2013 (Central Intelligence Agency, 2015), though such growth has been difficult to maintain. Most of Paraguay s economy is formed around production agriculture and small business (Unidad Tecnica de Estados para la Industria, 2011), with more than one-fourth of the population working in the 2 primary sector. Small businesses and commerce are other large contributors to national gross domestic product. With a market economy that is largely distinguished by a very large, yet hard to quantify, informal sector, the country has many problems with blackmarkets and illegal contraband (Central Intelligence Agency, 2015). Though efforts are being made to control such issues, corruption, political uncertainty, and lacking infrastructure present some challenging obstacles that will effect long-term growth. Paraguay has a very youthful population (Central Intelligence Agency, 2015), that is increasing in education and training (Ministerio de Agricultura y Ganadería, 2013). This is an advantage to the nation if it can supply sufficient opportunities for its new generation. With 40% of the population living in rural areas, the Ministry of Agriculture and Livestock has set forth several initiatives to better prepare and educate youth in the areas of business creation, management, and entrepreneurship in both traditional and nontraditional agriculture activities (Ministerio de Agricultura y Ganadería, 2013). Efforts are also being made to strengthen family agriculture operations to increase food production and improve family income generation. Many of these initiatives will require infrastructure advancement, education programs, market development, and public policies that will facilitate business creation and/or improvement. Understanding the barriers that inhibit and detour individuals from entering or starting small-business operations, whether agriculturally or nonagriculturally based, will be important as policies and initiatives are carried out in rural areas. The perceptions of business success, and those factors that contribute to it, are also key as the government looks to grow the rural business sector. This study aims to understand the perceptions of young entrepreneurs and 3 agriculture producers in the rural areas of Paraguay regarding factors leading to business success and entry. Using survey data collected in person in Paraguay, this study will provide an understanding regarding factors of success in small business and farm operations, and the perceptions of such factors. Results of the analysis can be used to inform policy makers and educators on the perceptions, limitations and advantages of young entrepreneurs and agricultural producers that have an interest in operating their own business and/or farm operation. With knowledge of the perceived barriers to business entry and the contributing factors to business success, Paraguay can institute policies to facilitate economic growth, while also providing its youth with opportunities for advancement and progress. Current Conditions in Paraguay The current conditions in Paraguay allow for moderate to fair growth in many industries. This section explores specific conditions in the areas of economics, business environment, and population demographics. With a high percentage of the population located in rural areas of the country and depending on agriculture and small-commerce activities for a living, production agriculture and nonagriculture sectors alike will be especially highlighted in the subsections that follow. Economics 4 The economic situation in Paraguay is highly distinguished by production agriculture, informal businesses, and the service/retail sectors. A high percentage of the Paraguayan population derives their living from either agricultural or small-business activities, with agriculture and livestock sectors contributing a combined 23.6% to the national gross domestic product in 2011 (see Figure 1). Typical of most developing countries, Paraguay s industrial/manufacturing sector is relatively small and underdeveloped (Ministerio de Agricultura y Ganadería, 2013), while the service sector is particularly large. This is common due to the difference in the amount of capital needed to start enterprises in the industrial sector compared to the service sector (Ekanem & Wyer, 2007). Agriculture Commerce/Business Industry Public Services Home Services Livestock Communication Construction Transportation Financial Business Service Electricity & Water Housing Forestry Hotel/Restaurants Mining Fishing % of GDP Figure 1. Structure of the Paraguay Economy, 2011 (Unidad Técnica de Estudios para la Industria, 2011). Percentage During , Paraguay s economy grew rapidly with favorable prices, 5 inflation rates and weather conditions, largely aiding the country s commodity-based exports (Central Intelligence Agency, 2015). This growth in the economy was enjoyed until drought caused large crop production and export losses, even before the tremendous economic slow-down of the global recession in In 2009, the economy fell 3.8% with low world demand and commodity prices causing exports to contract (see Figure 2). In an attempt to regain economic stability, the government reacted with financial stimulus packages that helped the economy recover in the following years (Central Intelligence Agency, 2015) Year % Change in GDP Figure 2. Paraguay Economic Percentage Growth in Gross Domestic Product (Gobierno Nacional - Paraguay, 2014). Paraguay s economy, in comparison to other Latin American countries, is small, yet still growing. Throughout the past decade, Paraguay has been among the fastest growing economies in Latin America (see Figure 3), but also being ranked among the 6 least competitive (La Asesoría Econónica del la Asociación Rural del Paraguay, 2008). Advancements in communication, progress with infrastructure, increasing education, and growing export markets has aided largely to economic growth and expansion. Some of the major commodities exported to neighboring countries and China are soybeans, livestock feed, cotton, meat, edible oils, wood, and leather (Central Intelligence Agency, 2015), with meat exports significantly rising over the past decade (La Asesoría Econónica del la Asociación Rural del Paraguay, 2008). With Paraguay s re-entry to MERCOSUR (Spanish: Mercado Común del Sur, English: Southern Common Market) in 2013, exports for most commodities are projected to increase, aiding in the continued progress of the economy (Marty, 2014). As the economy improves, it may well be presumed that more Paraguayans feel an incentive to remain in country, instead of seeking employment and better opportunity abroad. Argentina Chile Peru Paraguay Uraguay Colombia Mexico Brazil PERCENTAGE GROWTH/LOSS Figure 3. Latin American Percent Growth in Gross Domestic Product (Ministerio de Hacienda, 2012; Ministerio de Agricultura y Ganadería, 2013). Percentage 7 Business Environment Doing business within the borders of Paraguay offers opportunity and many challenges. Of 185 economies that were analyzed by the World Bank, Paraguay ranked 103 in doing business in 2010 (World Bank, 2010). Many of the obstacles that present themselves repeatedly to investors and entrepreneurs are the practices of the informal business sector, an inadequately educated workforce, and corruption (see Figure 4). The issue of the informal sector is becoming an increasingly large problem, with 75.3% of firms reporting competition against unregistered and informal firms, in comparison with the 62.3% for the region. Additionally, 17.5 % of the firms in Paraguay report having to make informal payments to public officials to get projects done, which is higher than the region s average of 10.9% (World Bank, 2010). Though these issues are challenging, it does appear that doing business is slowly improving within Paraguay. In 2014, Paraguay was second among South American countries in becoming easier to do business (The World Bank, 2014) % of firms identifying problem as their greates obstacle Figure 4. Top 10 Constraints to Firm Investment in Paraguay, 2010 (World Bank, 2010). 8 Small and micro-businesses dominate the Paraguayan economy, with 78% of the employment based in these sectors (Unidad Técnica de Estudios para la Industria, 2011). This means plenty of competition for new-entries and start-ups. Research shows that on average, it takes more than 30 days to get a business up and running formally in Paraguay (Central Intelligence Agency, 2015), while informal businesses are difficult to monitor. Amongst college students worldwide, degrees in busi
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