gem
Business Management

Report: World's Entrepreneurship is Patchy, Surprising

The economic health of countries is traditionally gauged by old-fashioned criteria such as the gross domestic product per capita. But this isn’t the industrial revolution anymore and wellbeing cannot be linked entirely to GDP, says the latest annual Global Entrepreneurship Monitor Report (GEM 2013) from the Global Entrepreneurship Research Association.

There are other indicators of human achievement apart from the strictly finance-oriented metrics of Keynesian economics, argues Michael Hay, the founder of the GEM report series. The vocation of economic study is a work in constant progress, he reasons, and we should update our perception of developing economies to account for other dimensions of the human condition. As a social science, economics should consider more variables in the equation than mere materialism. “It’s surprising that the social component of a social science has not been regarded as a key indicator for scholars and policy makers, until now,” says the report.

The wellbeing factor is gaining credence in social sciences and economics. The promotion of elements that make up and contribute to the wellbeing of the population – such as personal satisfaction with one’s life or job - is seen as an essential objective of policy.

The Kingdom of Bhutan leads the way here, according to GEM, after it introduced the notion of Gross National Happiness. (Like many economic factors, however, the measurement of this variable could be quite arbitrary. But that’s economics.)

White Papers such as, Subjective Well-Being: When, And Why, It Matters (Angner, 2013) and The World Happiness Report (Helliwell 2013, endorsed by the United Nations) have established that other factors such as creativity contribute to wellbeing. Innovation and entrepreneurship are cases in point that are explored in this report.

The GEM report profiles the entrepreneurialism of economies across three important dimensions. These are: the levels of recognition of business opportunities; the level of belief that people have the skills and knowledge to exploit them; and the numbers who’d reject them through fear of failure.

The study tracks pioneer traders, business magnates and commercial risk takers across races, cultures and political philosophies all over the globe. Surprisingly, it uncovered links between very disparate cultures (such as those of Japan and Russia) and also suggested that prosperity and technical sophistication don’t always create the best conditions for entrepreneurs. Some of the regions most enthusiastic for entrepreneurship were in regions, such as sub-Saharan Africa, which had the least developed technology industries and the least fertile business ecosystems for supporting startup businesses. 

GEM 2013 looked at the phases of entrepreneurial activity and tracked the degree to which entrepreneurial activities are driven by opportunity and necessity. It also examined the dropout rate and how it varied by region, culture and the availability of financial and intellectual capital. The aim of the analysis is to define how entrepreneurial aspirations have a socioeconomic impact. One of the questions to be answered is: why do some of the more entrepreneurial cultures fail to create the jobs, international trade and the goods and services associated with less imaginative nations in the developed world?

Perception is the key to happiness

Perceived abilities are intrinsically linked with opportunity and happiness. When individuals think they have the skills, knowledge and experience to start a new business, their failure to do so can be mortifying. In many western economies, however, the competition is rife and many individuals are better off finding employment, which minimises their risk and increases their leisure hours.

Many westerners use a startup business to gain attention and prove a point, which helps them obtain a better place in a highly competitive jobs market. Other entrepreneurs may be likely to start a venture with the pure intention to sell at a profit as soon as possible. These ‘terminations’ of startups may skew the figures.

In less developed countries, however, the motivation to start and continue is different, even if the supporting business infrastructure is less advantageous. This could explain why sub-Saharan countries have the highest expectations and optimism. They are measured having the highest perceived rates of opportunity and capability, in the study.

Fear of failure is another factor that affects the rate of entrepreneurship. It is higher in the Asia Pacific and South Asia region, with Vietnam having the highest rate with 56%, followed by Japan and Thailand with 49% each. EU countries also exhibit a high fear factor.

By contrast, failure is seen as a badge of honour in North American economies. As Timo Rein, the Estonian CEO of sales pipeline management software provider, Pipedrive, wrote recently in TheNextWeb:

“In the US, San Francisco is synonymous with startups, and the attitudes and opinions that permeate the tech space, from New York to Austin to Silicon Valley, is largely derived from what’s considered the norm in the 415 area code. But they haven’t quite made the leap across the Atlantic. Things that we take for granted, like a culture of encouraging risk-taking, a “big picture” way of thinking – even the way startups are expected to grow – are completely flipped upside down once you touch down in countries where a voltage converter is necessary.”

Intentions

Surprisingly, given the disparity in their cultures, racial profiles and politics, Russia and Japan both exhibited similar patterns of entrepreneurial intention rates. Both are relatively developed economies. In contrast, expectations of starting a business are extremely high in some other African economies such as Malawi, Botswana and Uganda, but also in Latin American countries such as Colombia and Chile.

The report attributed this to “necessity-based self-employment” decisions. In other words, people work for themselves because they have to.

Blame the Media?

The role of the media was examined in creating an innovation culture and appetite for invention. ‘Not really’ seems to be the conclusion. Economies from several global regions and covering all types of economic conditions scored high on this item, including Brazil, Uganda, Taiwan, Finland and Canada. The lowest scores were observed for Greece, Hungary, Luxemburg and Libya, where only around one-third of responses were affirmative.

The Entrepreneurial Employee

Not everyone can be an entrepreneur. However, the report identifies a new economic category that has rarely been measured: the “entrepreneurship within an existing organization”.

“Entrepreneurial employee activity is increasingly accepted as a relevant type of entrepreneurship,” says the report, “It aims at new venture creation and the introduction of new products and services. It also shares many behavioural characteristics with the overall concept of entrepreneurship, such as taking initiative, pursuit of opportunities and innovativeness.”

It’s too early to reach conclusions about this aspect of the economy but this, more than individual entrepreneurship, might yield much more valuable insights into how technology can assist economies. How often is technology a shield that we hide behind – “Sorry, can’t help you, the system’s down” – and a suppressor, rather than a positive catalyst, for ingenuity and initiative?

As the GEM 2013 Global Report concludes, it is the quality of entrepreneurship that will matter as economies use technology to drive themselves out of the recession.

 

Nick Booth worked in IT in the UK’s National Health Service, financial services and The Met Police, witnessing at first hand the disruptive effects of new technology.

PREVIOUS ARTICLE

« Will US Let Chinese Dragon Lenovo Eat Its Tech Economy?

NEXT ARTICLE

UAE: Thriving ICT as Neighbours Struggle for Stability and Trust »
Nick Booth

Nick Booth worked in IT in the UK’s National Health Service, financial services and The Met Police, witnessing at first hand the disruptive effects of new technology. As a journalist and analyst, his mission is to stop history repeating itself.

  • Mail

Poll

Do you think your smartphone is making you a workaholic?