Global Entrepreneurship Monitor: Start-ups fell in Ireland, Europe and US in 2006 but China powers on

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Global Entrepreneurship Monitor: Start-ups fell in Ireland, Europe and US in 2006 but China powers on
By Finfacts Team
Jan 9, 2007, 13:12

Fig. 1 - Early-Stage Entrepreneurial Activity Rates and GDP per Capita, 2006

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See page 14 GEM 2006 report

Entrepreneurial behavior continues to fuel the engine of innovation and growth around the world; and middle income countries boast higher levels of start-up entrepreneurial activity according to the eighth annual Global Entrepreneurship Monitor (GEM).

GEM estimates the level of involvement in early-stage entrepreneurial activity by combining the prevalence rate of nascent entrepreneurs (people in the process of starting a new business) and new business owners. The numbers are then related to the 18-64 age population.

The GEM, the world's most comprehensive study of start-up activity, found the percentage of people who were either thinking of going into business or had just started a new venture slid substantially in Ireland, Europe and the US last year.

Rebecca Harding, executive director of GEM, said the fall in house prices had a particular impact in the US because people felt they had less of a financial cushion to support a business risk.

"It has been difficult for people to think that they have the freedom to borrow a bit of money off their house" to start a business, she said.

The report, which analyses levels of entrepreneurship in 42 countries, found substantial declines in the proportion of people involved in early-stage start-up activity in several of the world's richest nations.

In the US the figure fell from 12.4 per cent in 2005 to 10 per cent last year; in Germany it dropped from 5.4 per cent to 4.2 per cent; and in France the decline was from 5.4 per cent to 4.4 per cent. In Ireland, the early stage entrepreneurship rate fell from 9.8 per cent to 7.4 per cent.

The decline in the UK's early stage entrepreneurship rate, from 6.2 per cent to 5.8 per cent, was partly attributed to the growth in jobs in the financial services sector, where the lure of high wages was attracting many would-be entrepreneurs.

By contrast, in China early stage entrepreneurship rose to 16.2 per cent from 13.7 per cent year-on-year, and in Argentina to 10.2 per cent from 9.9 per cent

Early-stage entrepreneurial activity is generally highest in poorer countries, where many start-ups are formed because there are no better alternatives available to earn money.

Directed by Babson College and London Business School, and released today, GEM is the world’s largest research project focusing on entrepreneurs and entrepreneurship. Now operating in some 42 countries across the world, it monitors levels and types of entrepreneurial activity. It brings together key policy makers, business leaders, and academics in a global network of influence. No other research exists that can provide consistent cross-country information and measures of entrepreneurial activity in a global context.

Ireland

Although still to the fore in Europe, in terms of the level of early-stage entrepreneurial activity, Ireland has not managed to sustain the level achieved in 2005 and results for 2006 show a level of early-stage entrepreneurial activity of 7.4%, (similar to the 2004 result). There was a significant increase in the number of men active as early-stage entrepreneurs in 2005, which contributed, in the main, to the significant increase in early-stage entrepreneurial activity that was evident in Ireland that year. This increase has not been sustained in 2006 and the number of men involved in early stage entrepreneurial activity, while still very high by European standards, reverted to the level of 10.5%, which is similar to that evident in 2004, and is down from the 2005 level of 14.2%. This is an important feature, as the significantly greater involvement by men in entrepreneurial activity in 2006 (+35%) drove the overall increase experienced in 2006.

Key U.K. Findings (taken from the GEM UK Report)

New business start-ups had a small drop from 6.2% in 2005 to 5.8% in 2006. However the reduction was smaller than in the comparable economies of the USA (12.4% to 10%), Germany (5.4% to 4.2%) or France (5.4% to 4.4%).
Entrepreneurial attitudes continue to be positive, though indicators have slipped slightly on their 2005 levels. Among UK adults, 7.8% expect to start a business over the next three years, 27.2% know an entrepreneur, 36.8% see good business opportunities and 49.6% think that they have the skills to start a business. Fear of failure does however remain high at 35.8%.
23% of all start-up activity is in new product market areas with 10.2% of early stage activity and 9.6% of established business activity in new technology areas.
7.8% of all early stage entrepreneurs have 75 – 100% of their markets abroad.
UK policy towards entrepreneurship continues to be strong and focuses on entrepreneurial activity as one of the major drivers behind the UK further improving its productivity.

Key Global Findings

An entrepreneurial boom exists in China and India. New business start-ups in China are up 16.2% from 13.7% last year; 60 % is opportunity-driven; 70% of the Chinese think entrepreneurship is a good career choice; and 32% expect to start a business in the next three years. Chinese governments and policies are most supportive—new funds, new incubators, science parks are all recent initiatives. Improvements in education, funding, and commercial infrastructure are still in demand.
The scenario is similar in India where one in every ten is engaged in entrepreneurial activity, and the gender gap narrows in India. But India has the highest level of business exits (15%) among GEM nations in 2006. The communications infrastructure is excellent, yet governmental bureaucracy and the presence of ‘big player’ companies make it difficult for start-ups to establish themselves. Surprisingly, India is behind in developing new policies in support of entrepreneurs.
Entrepreneurial activity rises in countries with low GDPs. Countries with similar levels of GDP tend to have similar entrepreneurial activity-- most likely because of the dominance of large businesses.
Entrepreneurs everywhere are taking advantage of opportunities; still countries with the lowest GDP have the highest levels of necessity-driven entrepreneurs. France and Germany –where necessity entrepreneurship is high—are the exceptions, most likely because of labor reforms which encourage business start-ups over unemployment services.
The number of new business start-ups is always higher than established business ownership. This is particularly the case in the U.S. where Early-stage entrepreneurship is high compared to Europe where established business ownership is similar.
Low and middle income countries show higher levels of innovation and technology in Early-stage entrepreneurship than in established businesses. Still, these less developed countries are not necessarily using technologies that would be considered new in more sophisticated consumer markets of higher income countries.
Experience and Gender still matter—Early-stagers are young (24-25) and men are more likely to entrepreneurially active. The exception is women from higher income countries are less likely to be entrepreneurs than their lower income counterparts.