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Millions of entrepreneurs expect to create new jobs

Professor Mark Hart
Professor Mark Hart
20 January 2010

Today, 250 million people between 18-64 years old are actively engaged in starting or running new businesses in 59 economies as the survey conducted by the Global Entrepreneurship Monitor (GEM) published January 2011 reports. GEM is the largest and most comprehensive worldwide research study of entrepreneurial attitudes, activities, and aspirations.

Released today, the Global Entrepreneurship Monitor 2010 Report states that an estimated 63 million of these early-stage entrepreneurs expect to hire at least five employees over the next five years.  Twenty-seven million anticipate hiring twenty or more people in newly created jobs. The potential contribution of entrepreneurship in job creation across the globe is important to economic growth.

According to GEM, positive measures of entrepreneurial aspirations send a strong message to governments and policy makers.  In order to revive their economies, governments will need to put some muscle into cultivating their nations’ entrepreneurial eco-systems.

In 2010 GEM surveyed more than 175,000 people and over 3,000 national experts in 59 economies around the world. The report covers over 52% of the world’s population and 84% of the world’s GDP. This research is accomplished through an international network of national academic research teams, with global sponsorship by Babson College, USA and Universidad del Desarrollo, Chile.

This year’s study was set against a backdrop of a world still struggling to emerge from the 2008–2009 recession, with a number of nations still undergoing major reforms in the effort to stabilize their economies. However, the UK fared relatively well in the survey, with the percentage of working age individuals who agreed there were good opportunities for starting a business in their local area in the next six months increasing from 24% in 2009 to 29% in 2010, while for the first time, the GEM estimate for early-stage entrepreneurial activity among working age men in the UK was slightly higher than that for men in the US.

Professor Mark Hart from Aston Business School at Aston University, co-director of GEM in the UK, commented:

“These initial results suggest that new business sentiment improved in the UK in 2010. Of particular note is the significant rise in ordinary people investing in each other’s businesses.” Dr Jonathan Levie, from University of Strathclyde, added: “Unlike in many countries, where more entrepreneurs were starting businesses out of necessity, nine out of ten start-up and new entrepreneurs in the UK in 2010 were opportunity-driven. In fact, early-stage entrepreneurs in the UK were half as likely to be necessity-driven as in other wealthy countries.”

The GEM 2010 Report shows that in Ireland, one of the European Union’s worst hit economies, the population began to perceive fewer opportunities for entrepreneurship as early as 2007—the year before the crisis hit. GEM’s research shows that the number of people setting up businesses in Ireland was falling a few years before the recession started, and now a smaller number of entrepreneurs are running new businesses during the recession.  Once the recession gained a foothold, the percentage of entrepreneurs starting businesses out of necessity rose markedly.

“This all suggests that people tend to hold onto their jobs rather than take the risk of pursuing an opportunity for a new business in the period leading to a recession. During a recession, some people will be pushed into entrepreneurship to generate a source of income,” says Niels Bosma, report co-author.

“At the same time,” Bosma continues, “a significant share of the entrepreneurs surveyed saw new business opportunities emerging from the recession. Entrepreneurial responses to recessions are thus very mixed and the dominant response depends on the national context.”

The GEM report stresses that it takes more than numbers of entrepreneurs to impact economic development.  Findings suggest that economies must look at quality measures of entrepreneurship, such as what spurs growth, sparks innovation, and encourages participation in the international marketplace to be able to encourage new businesses.

Implications of GEM 2010 Report

  • Entrepreneurship does not impact an economy simply through higher numbers of entrepreneurs. It is important to consider the impact small businesses have on economic growth, innovation, and internationalisation.
“Policy makers need to look beyond simply the number of active entrepreneurs. They need to understand the contribution these individuals make to economic growth and national competitiveness.  Are these entrepreneurs creating jobs?  Are they building innovative, global companies? These are the important questions to ask,” states Professor Donna Kelly, one of the report authors.
  • Economies can facilitate people in starting businesses as a source of income, particularly when there are not enough jobs to meet demand.  Employed people also benefit from new business opportunities, and a supportive environment can help encourage many to venture into entrepreneurship.
“Governments must encourage those with great ideas to pursue the opportunities they perceive. In so doing, entrepreneurs and governments build a foundation for future jobs,” notes Ignacio de la Vega, Chair of the GEM oversight board.
  • Comparisons across both development-level and geographic groups may enhance understanding about entrepreneurship and the conditions that impact it, both within and across economies.
“Economies at similar development-level stages, and even those in the same geographic region, tend to show some similar patterns, but also some distinctness.  This indicates great opportunities for benchmarking and sharing of experiences regionally,” says Professor Jose Ernesto Amoros, report coauthor.
  • Societies should contain a variety of business phases and types, led by different types of entrepreneurs. Women’s participation in early-stage entrepreneurship relative to men’s ranges widely around the globe: In the Republic of Korea there are five times more men than women entrepreneurs, while in Ghana there are fewer men than women starting businesses.
“In economies where there are few women participating in entrepreneurship, society loses the chance to benefit from the creative ideas of half its population,” states Kristie Seawright, Executive Director of the GEM project. 
  • A society-wide entrepreneurial mindset is necessary to support entrepreneurs. These individuals need supportive families, people willing to finance their ventures, and customers that will buy from them. In addition, non-entrepreneurs with entrepreneurial mindsets may indirectly stimulate others to start businesses.

Key findings

Attitudes


Imbalance in perceptions
  • In the less developed factor-driven economies, Sub-Saharan African countries (Angola, Ghana, Uganda, Zambia) exhibited high optimism about starting new ventures, while perceptions in the MENA /South Asia regions (Egypt, Iran, Pakistan, Saudi Arabia, West Bank and Gaza) were relatively lower.

  • In the middle-income efficiency-driven economies Latin America was optimistic about opportunities for entrepreneurship while this measure was lower in Eastern Europe. 

  • Among wealthier innovation-driven economies, high optimism reigned in Nordic regions, while Southern Europe reported lower perceptions.
Fear of failure
  • Awareness of the status and media attention for entrepreneurs, and the attractiveness of such a career choice were mixed geographically and among the three economic development levels. 

  • People in some economies believed entrepreneurs had a high status; but they had little desire to become one. 

  • Other economies saw entrepreneurship as an attractive career choice, despite little perceived status or media attention.

Activity


Slowdown in innovation economies
  • More than half the innovation-driven economies still saw declines in TEA (Total Early-Stage Entrepreneurial Activity).

  • The number of positive and negative shifts in TEA levels over last year was roughly equal in the factor-driven and efficiency-driven economies.
Regional differences in entrepreneurial activity
  • In the factor-driven group, TEA rates were highest in sub-Saharan African countries, while MENA levels are low. 

  • Efficiency-driven Latin American and Caribbean economies reported high TEA rates, while this level was low in Eastern Europe. 

  • Iceland, Australia, and the United States showed the highest TEA rates among the innovation-driven economies.
Business exits - The rate of business discontinuance is highest in factor-driven economies.  Across all economies, financial issues weigh most heavily in business exits. This shows how difficult it is for entrepreneurs to keep their businesses going in challenging business environments.

Aspirations


High-growth expectations - are highest among the efficiency and innovation economies, showing the potential for higher impact businesses with increasing economic wealth.

Notably, though, TEA levels are low in MENA and Eastern European groups, they show relatively high-growth expectations, indicating a greater contribution to job creation for every entrepreneur.

Going international - As expected, factor-driven economies have fewer international customers.  Eastern European entrepreneurs are more likely to reach outside their borders, however. On the other hand, entrepreneurs in economies with large geographic territories, like China and Brazil, are slower to expand worldwide. 

What the experts think


Entrepreneurial support structures - GEM interviews with national experts found that among most economies, physical, commercial, and legal infrastructure received positive evaluations, but entrepreneurial education and training lagged behind.

Dynamism and stability - Entrepreneurship needs both dynamism, which occurs through the creation of new businesses and the exit of non-viable ones, and stability, which offers new businesses the best chance to test and reach their potential.

 

GEM Countries classified by Economy and Geography

 

 

Factor-Driven

Efficiency-Driven

Innovation-Driven

Sub-Saharan Africa

Angola, Ghana, Uganda, Zambia

South Africa

 

Middle East/ North Africa

Egypt, Iran, Pakistan, Saudi Arabia, West Bank and Gaza

Tunisia

Israel

Latin America and Caribbean

 

Jamaica, Guatemala, Bolivia

Argentina, Brazil, Chile, Colombia, Costa Rica, Ecuador, Mexico, Peru, Trinidad and Tobago, Uruguay

 

Eastern Europe

 

 

Bosnia and Herzegovina, Croatia, Hungary, Latvia, Macedonia, Montenegro, Romania, Russia, Turkey

Slovenia

Asia Pacific

Vanuatu

Malaysia, China, Taiwan

Australia, Japan, Republic of Korea

United States and Western Europe

 

 

 

Belgium, Denmark, Finland, France, Germany, Greece, Iceland, Ireland, Italy, Netherlands, Norway, Portugal, Spain, Sweden, Switzerland, United Kingdom, United States

 

 

 

Download the report

For more information on the report, contact report author Donna Kelley at dkelley@babson.edu

For more information on the Global Entrepreneurship Monitor project, contact Executive Director Kristie Seawright at kseawright@gemconsortium.org or telephone: 1 (801) 836 6526

For all media enquiries in the UK, contact Dhiren Katwa, Press Officer at Aston Business School, on 0121 204 4954 or email d.katwa1@aston.ac.uk

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