THE GLOBAL ENTREPRENEURSHIP MONITOR 2010: IMPLICATIONS FOR EDUCATORS
By Donna Kelley
In January 2011, the Global Entrepreneurship Monitor (GEM) launched its 12th Executive Global Report in Washington, D.C. The report revealed the rates of individual participation in entrepreneurship in 59 economies, and provided information on attitudes about entrepreneurship, the characteristics of entrepreneurs and their businesses, and the ambitions of entrepreneurs relative to growth, innovation, and international sales.
The report concluded with seven key implications, primarily directed toward policymakers. But these conclusions offer insights for educators as well. This article discusses these seven implications and offers some thoughts on what these can mean for entrepreneurship education.
First, entrepreneurship does not impact an economy simply through higher numbers of entrepreneurs. It is important to consider quality measures, such as growth, innovation, and internationalization. The GEM report showed different levels of entrepreneurship across the 59 economies, in terms of the percentage of the adult population engaged in starting or running new businesses. But there were also differences in the proportion of entrepreneurs aspiring to grow their business, seek international markets, and introduce innovative products and services.
For example, while the Latin American/Caribbean and the Sub Saharan African regions tended to have higher rates of entrepreneurship than Eastern Europe/Central Asia and Middle East/North Africa, the latter reported a higher proportion of entrepreneurs with growth aspirations. This shows the different impact of entrepreneurs, with many smaller-scale entrepreneurs in the first two regions mentioned, and fewer entrepreneurs, but with a higher percentage of them targeting growth, in the second two.
Entrepreneurs therefore differ in the extent they aspire to develop high-growth ventures, pursue innovation, and seek international markets. These types of businesses can have a greater effect on a variety of stakeholders: employees, investors, customers, and so forth. To the extent education aspires to develop individual capabilities for high-potential entrepreneurship, educators can identify the unique skills required to build their students’ abilities for these types of businesses. For example, they will need to learn how to build an organization capable of managing rapid growth and determine what financing sources and strategies are most relevant.
Second, economies need to enable people to start businesses when it is necessary, but they also need to encourage those attracted by opportunity to venture into entrepreneurship, even when they have other work options. GEM distinguishes between necessity-based entrepreneurship, where people start businesses because they have no other options for work, and opportunity-based entrepreneurs, where people are entering entrepreneurship to pursue an opportunity, with the motivation to maintain or improve their income or to seek greater independence in their work.
The 2010 GEM report highlights the fact that less-developed economies had a higher proportion of necessity-based entrepreneurship. At higher levels of development, necessity-based motives are more likely to be replaced by opportunity-driven ones. As countries become industrialized, for example, large companies provide more job options for people, so those who do pursue entrepreneurship are more likely to do so out of opportunity rather than necessity. Thus, in early development-stage economies, the supply of jobs is typically insufficient to satisfy demand. But even in economies at an advanced development stage, there are times when people are out of work and need to create their own jobs, such as was experienced during the 2008–2010 recession. Necessity entrepreneurship can therefore serve as a remedy for unemployment.
At the same time, when people have jobs, particularly those offering stability, high salaries, or other advantages, the opportunity costs of starting a business are high. Mortgages, kids in college, and other financial obligations can increase people’s tolerance for risk. Yet to the extent individuals see opportunities, but fail to pursue them, society misses out on the job-creating potential and the new market value these opportunities can provide.
Those receiving an education, particularly post-secondary, may have a variety of career options they can pursue throughout their working lives. They may have ideas for businesses based on knowledge they developed during their university education, from their work experience, or from their network of contacts. If they have the potential to create viable businesses out of these opportunities, should a stable job or the need for financial security stand in the way? Sometimes this may be prudent, but in excess it could deplete a society’s entrepreneurial dynamism.
Educators can present entrepreneurship as an option their students can pursue currently, but also at some point in their career, such as when they see an opportunity and when the timing is right. They can teach their students how to assess a new venture concept and shape it into something more viable. Students can learn how to be parsimonious with resources and reduce the risk of their ventures. These skills can boost the attractiveness of pursuing entrepreneurship, particularly relative to the costs of foregone opportunities (such as a stable job).
Additionally, entrepreneurship education often is linked with more positive attitudes toward this endeavor. Attitudes, in turn, tend to be associated with entrepreneurial intentions and activity. Educators can impact attitudes toward entrepreneurship through such means as having students meet entrepreneurs who can serve as role models. They can facilitate the students’ connections to entrepreneurship and their own motivations and personal development.
Third, entrepreneurship needs both dynamism and stability. Dynamism occurs through the creation of new businesses and the exit of nonviable ones. Stability comes from providing new businesses with the best chance to test and reach their potential. GEM sees entrepreneurship as a process encompassing multiple phases, from those in the process of starting a business, to those running new businesses. This also includes established entrepreneurs and those who have discontinued their businesses. Across the GEM sample, there were different levels of entrepreneurs at the different phases. For example, some economies had a lot of people starting and running new businesses, but few running established businesses. This causes one to wonder whether the entrepreneurs were unable to sustain their effort, or whether the environment constrained their ability to build stable businesses.
On the other hand, some economies had a lot of established entrepreneurs, but fewer in the startup and new business phase. Could these economies have conditions that make it difficult or unfavorable for starting businesses? Are the established entrepreneurs outliving their useful life because there are fewer upstarts to challenge their positions? The question in this case is one of dynamism—a potential lack of new ideas displacing, at least in part, those that have run their course.
Educators need to teach their students how to create new businesses, but also how to recognize when to exit. Unprofitable, stagnating businesses that no longer have a viable product or service in the current market do not benefit their stakeholders or societies. Entrepreneurship is not a one-shot deal; many failures create the seeds for later success. Entrepreneurs need to understand when to cut their losses, learn from their experiences, and move on. This contributes to dynamism.
With regard to stability, entrepreneurs need to give their businesses the best chance for surviving. Few businesses succeed in the original form their founders envisaged. Founders need to stay focused, for sure, but they also need to recognize when it’s time to change course: when it’s apparent their market wants something different, when the economics of the current business model are working, and so forth. Students—and entrepreneurs—need to experiment with their ideas and learn from the outcomes, shifting direction when the signs point that way.
Students also need to understand how to build organizations, not just pursue opportunities. These organizations, with capable managers, effective operating processes and structures, and strategic visions that extend their entrepreneurial ambitions into the future will position the company in the best way possible to survive and thrive. Educators need to address the multiple phases of entrepreneurs and the key management implications at each stage.
In many economies, the viability of a new business can easily be threatened by conditions in the environment, such as political or economic instability, shifts in availability of inputs, or corruption levels. Entrepreneurs may find it hard to stay in business when the environment is difficult or conditions fluctuate. The implications for education are therefore that entrepreneurs need to learn more than just how to recognize, shape, and develop an opportunity. They need to navigate the complexities of their environments and overcome the hurdles that would otherwise deter them.
Fourth, comparisons across both development-level and geographic groups may enhance understanding about entrepreneurship and the conditions that impact it, both within and across economies. Although each economy offers its own unique entrepreneurial character, we did find some patterns in the GEM data. For example, early development-stage economies had comparatively high rates of entrepreneurship, proportionately more necessity-based entrepreneurs, and greater participation in the consumer-focused sectors. Eastern European economies had a high proportion of entrepreneurs with international customers, while Sub Saharan Africa had a high proportion of women entrepreneurs.
Many educators are teaching students from other countries on their campuses and teaching in other countries. While we may assume a certain set of conditions in our home region, we need to recognize, and teach our students how to recognize, the differences in factors that can influence one’s ability and approach to starting businesses in different parts of the world. By examining the conditions, and the nature of entrepreneurship, in countries at similar and different development levels and geographic regions, we may learn more about how entrepreneurship can and does happen.
In addition, entrepreneurs will see the world as their playing field. In teaching global entrepreneurs, we allow them to find the best market, wherever it is, and find the best locations for each aspect of their operations. Equipped with an understanding of development stages and regional conditions, students can scan the globe for possibilities.
Consider the opportunities for connecting with other educators in your region, or in a different region, and to convene with other teachers in economies that have similar development-stage challenges. Sharing practices, ideas, and helping each other address challenges can make entrepreneurship education more effective everywhere.
Fifth, entrepreneurship in a society should contain a variety of business phases and types, led by different types of entrepreneurs, including women and underrepresented age groups. As mentioned in #3 above, GEM measures individual participation at different phases of entrepreneurship. GEM also measures demographic characteristics. The 2010 report showed significant variation in women participation in entrepreneurship. There was more consistency in the ages of entrepreneurs, with the 25-34 age range most popular, followed by the 35-44 year olds. At the same time, there were some differences in some countries, with Japan for example, reporting comparatively more older entrepreneurs and Romania having younger ones.
In many economies, women, people of different ages, and other groups (immigrants and veterans are examples) may be excluded or deterred from entrepreneurship for various reasons. Women may need assistance with accessing financing. Young people may need to overcome their lack of industry experience and connections. Educators need to understand where these barriers may exist and help equip their students to overcome them.
Sixth, initiatives aimed toward improving entrepreneurship should consider the development level of the economy. With a strong set of basic requirements in place, efforts can turn toward reinforcing efficiency enhancers, and then building entrepreneurship framework conditions. The GEM model conceptualizes basic requirements such as infrastructure, health, and primary education as the focus of early development-stage policy efforts. These are followed by efficiency enhancers, which tend to be the focus of economies entering a midlevel of economic development, often characterized as the industrialization phase. Efficiency enhancers comprise factors such as higher education, financial institutions, and the creation of internal markets. Entrepreneurship framework conditions are seen as appropriate when a healthy foundation of these more fundamental factors are in place. Otherwise, efforts to promote entrepreneurship may run up against roadblocks if there isn’t, for example, an adequate supply of an educated work force or a reliable transportation or communications infrastructure. Entrepreneurship conditions include government policies and programs targeting entrepreneurship, entrepreneurial finance, and entrepreneurship training.
It is only somewhat recently that new and small businesses were recognized as the chief job creators in many economies. In addition, policymakers are looking toward the self-employment and job-creating potential of entrepreneurship to help counter widespread unemployment that can potentially lead to social unrest. Educators may therefore play a role in informing policymakers about the nature of entrepreneurship and the conditions that foster it.
While policymakers and perhaps other influential groups or organizations may be able to impact the environment for entrepreneurship in a region, students may have little ability to control their external context. That should not deter the entrepreneur, however. Educators can help students understand how to work with what they have, to leverage their advantages, and overcome the challenges they face in their environments.
Seventh, an entrepreneurial mindset is not just for entrepreneurs. It must include a variety of stakeholders who are willing to support and cooperate with these dynamic efforts. In addition, non-entrepreneurs with entrepreneurial mindsets may indirectly stimulate others to start businesses. This indicates the value of broader societal acceptance of entrepreneurship. GEM measures attitudes about entrepreneurship in the general population. The 2010 report showed some interesting results where, for example, some economies with high fear of failure also reported low entrepreneurship rates. In addition, some economies reported a high perception that there were good opportunities for entrepreneurs, but low perceptions about one’s capabilities for starting businesses. In others, there were differences in how people perceived entrepreneurs (in terms of the status attributed to them) versus whether they would want to be one. These results show the importance of not just educating people to develop their abilities, but also their attitudes, with regard to entrepreneurship.
Educators are not just developing entrepreneurs, however. They also are educating people who will support their family members in their entrepreneurial endeavors—and this may be financially, emotionally, or with advice. They are training future bankers, equity financiers, lawyers, and accountants who may work with entrepreneurs. They may even influence those who become customers and suppliers who are willing to buy from, or sell to, these individuals with new and different products and services. The goal for entrepreneurship education is therefore much broader. We, as educators, are therefore not just teaching people how to start business, but also how to contribute toward the supportive ecosystems entrepreneurs need to thrive.
This article has discussed some insights from the GEM 2010 Global report, providing some implications for educators. We invite you to further consider, and discuss with others, how these findings can influence how we educate our entrepreneurs around the world. Entrepreneurship is very much about people, and people can learn how to be effective entrepreneurs.