Abstract
A central actor in the development of food processing as an industrial sector is the entrepreneur. Though less technology-driven than industries like telecommunications, businesses require a certain optimum linkage with upstream input-sector (agricultural produce markets) as well as the downstream retail segments. Successful entrepreneurship is necessary for this, as it discovers high-value-added items and linkages within the product networks in food processing. We introduce the notion of non-physical costs of doing business in this chapter, which are present in addition to the physical costs we discuss in the previous chapter. These costs are due to entrepreneurial inexperience and financial market imperfections. The missing middle size implies higher non-physical costs, as inexperience costs go up. Using these costs as well as a notion of outside options, we develop a theory of entrepreneurial mindsets that determine their behaviour. To do this, we enrich the theory of counterfactual thinking with a regional qualifier as a region-based counterfacatual thinking (rCFT). This theory accounts for how different entrepreneurial mindsets manage risks in business, even if they are mitigated with government support in the form of subsidies. Our primary survey among entrepreneur in Bihar’s food processing industry (2016–2017) allows us to capture rCFT empirically. The question that identifies rCFT is whether the entrepreneur would do business in Bihar if she/he had not been a native of the state. It isolates the effect of ‘doing business’ from ‘doing business in Bihar’ so that the perception of risk of business in the region is captured. Using this framework we categorize entrepreneurial mindsets. Of the three possible types we identify, it is only the local type of entrepreneur with the ability to leverage specific regional information appropriately who express positive rCFT. Empirical evaluation of the survey responses show that positive rCFT is correlated with low-risk perception of doing business and vice versa. Therefore, a possible reason for policy failure in Bihar is the failure to target the right entrepreneurial mindset underscoring the importance of horizontal policies that develop entrepreneurial skill.
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- 1.
Note that we are not arguing why external subsidy support is needed in the first place. Given the regional trajectory that we are addressing, as we mention in Chap. 5, the role of the policymaker is central to the process of industrialization.
- 2.
- 3.
We have not defined yet what we mean by ‘correct’ project. We use entrepreneurial mindsets in this chapter and identify that type which has positive rCFT as the correct entrepreneur type and hence his/her project is the ‘correct’ project.
- 4.
This part of the discussion draws heavily from the author’s recent publication (Saha 2019).
- 5.
We have used similar but slightly different notation from the previous Chap. 6. There, we used \(q_i\) to denote the output of an entrant in sub-sector i of food processing, but we use \(x_{ij}\) here for two reasons. First, in this chapter, we bring in the entrepreneur j in the discussion in addition to the sub-sector i. Second, we build in the uncertainty in the production process by making \(x_{ij}\) random, whereas \(q_i\) was deterministic. Our efficiency analysis using NDEA was deterministic in nature. We extend the analysis here with uncertainty, as we discuss risk perceptions which matter in an environment of uncertainty. We also do not mention the size s to characterize retail price \(p^r_i\) in this chapter. Our understanding here is that the typical entrant size in the Bihar trajectory is small (see Chap. 5) and the relevant size is that of mid-sized firms l that informs the theory regarding non-physical costs and rCFT in this chapter.
- 6.
Note that these entrepreneurs gave us permission to reveal their identities. A collection of interviews are available on the IGC page which has a summary of our survey at https://www.theigc.org/project/study-of-the-food-processing-sector-in-bihar/.
- 7.
Note that we use non-physical costs in the per-unit sense.
- 8.
This is in line with the nature of backward induction solutions for dynamic games.
- 9.
Note here that the uniform distribution has been assumed for its ease in working out theoretical results.
- 10.
We have used our final report on Food Processing Industries in Bihar, written on the basis of our IGC project and submitted to the IGC in 2018 for a part of this chapter. Further details are at https://www.theigc.org/project/study-of-the-food-processing-sector-in-bihar/ and a short note on the project is available at https://www.ideasforindia.in/topics/trade/the-study-of-the-food-processing-industry-in-bihar.html.
- 11.
Newman (2018) provides a number of examples of these networks such as co-authorship or friendship or even buyer–seller networks.
- 12.
These agencies are referred to Project Management Agencies in Bihar.
- 13.
These firms do not form the necessary co-processing linkages that we discuss in the previous chapter. The government has also kept them out of the purview of subsidies in its policy.
- 14.
Two of the units surveyed resulted in managerial interviews and not that of the original entrepreneurs and hence were not included in the final sample for understanding the perception of risk.
- 15.
A few exceptions are in Nalanda, where the cold storages store flowers which they sell to tourists and in Hajipur, where the owner sells unbranded apples in cartons to buyers in Delhi.
- 16.
Note that we present a richer framework here, with a theoretical understanding of non-physical costs and rCFT than in Saha (2019). However, this framework constrains how we develop the empirically testable hypotheses. The latter are different in Saha (2019), as it presents the empirical results without the constraints of the theoretical framework proposed here.
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Acknowledgements
I thank IGC, London for letting me use parts of our final report we submitted to them on the IGC-sponsored primary survey among entrepreneurs in food processing in Bihar in 2016–2017. This report was finalized by Barna Ganguli and the author of this book, who was the Principal Investigator for that project. I would like to thank the participants of the 13th International Annual Symposium on Economic Theory and Policy organized by ATINER, Greece in July 2018 for their inputs on my work on entrepreneurial perceptions. A part of this chapter is based on my article in the Athens Journal of Business and Economics and another part has been selected for presentation at the 30th Annual Game Theory Society Conference, Stony Brook (New York) in July 2019.
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Saha, D. (2020). Food Processing in Bihar: Entrepreneurial Perceptions. In: Economics of the Food Processing Industry. Themes in Economics. Springer, Singapore. https://doi.org/10.1007/978-981-13-8554-4_7
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