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News : Irish Economy Last Updated: Jul 8, 2013 - 11:41 AM


Irish Economy 2013: Number of early-stage entrepreneurs in Ireland is low and falling
By Michael Hennigan, Finfacts founder and editor
Jul 5, 2013 - 7:31 AM

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Irish Economy 2013: The proportion of people in Ireland who are early stage entrepreneurs has fallen (6.1% in 2012 from 7.3% in 2011) and Ireland’s ranking against other countries has declined. Ireland is now ranked 18th among the 34 mainly developed OECD countries, 14th of the EU-27 countries (of 22 countries included) and 6th of the pre-2004 EU-15 countries.

The majority of entrepreneurs are setting up new businesses that are in low technology sectors, are not particularly innovative and have little or no aspiration for growth. A small number of new businesses, however, will have a disproportionate economic impact due to their ability to exploit newer technologies, their high degree of innovation, their greater export orientation and their aspirations for growth.

A report [pdf] that was prepared for the Irish Government and published today says: 

  • The general perception of opportunities for new businesses by people in Ireland continues at historically low levels and is far below that pertaining across the OECD and EU;

  • The aspiration to become an entrepreneur remains low, and is far below that generally observed across the OECD and EU, at a time when the perceived need for entrepreneurs is greater than ever;

  • Fewer people are currently planning and starting new businesses in Ireland. This is particularly the case among men;

  • In respect of early stage entrepreneurs, Ireland’s position relative to other European countries has significantly declined;

  • The prevalence of early stage entrepreneurs in Ireland is at historically low levels and is half of what it is in the United States;

  • The level of early stage entrepreneurs that are motivated by necessity continues at a high rate;

  • A marked lowering of growth ambition may be observed among men starting new businesses.

The property boom masked the underlying poor performance of the indigenous sector and regular readers of Finfacts will not be shocked by today's findings.

In recent times we have highlighted that the number of SME firms per 1,000 inhabitants, is half the European average and the number of SMEs that export is low.

A laundry list of new schemes will not address what is an enduring challenge.

Total early stage entrepreneurial activity refers to the total rate of early stage entrepreneurial activity among the adult population aged 18-64 years inclusive.

The rate of early stage entrepreneurs in the US (12.8%) is over twice that of Ireland and the rate in the UK is also considerably higher (9.0%).

The report says that an overall decline in the rate of early stage entrepreneurial activity, particularly among men, is apparent in the later period 2010 to 2012 compared to the earlier period. The percentage of the adult population that expects to become employers through their entrepreneurial activity has also declined. In the more recent period there has also been a decline in the rate among the general population of those stating their intention to start a business, a decline in the perception of entrepreneurship as a good career option, and a rise in entrepreneurship motivated by necessity.

It adds that the aspiration to set up a new business may be negatively affected not only by the significant decline in the perception of opportunities for new enterprises...but also by the fact that less than half the adult population (45%) considers entrepreneurship to be a good career choice. The current prevalence in Ireland of this view is considerably lower than that of many other countries. For example, the OECD average is 56%, the EU-27 and the EU-15 averages are 58%.

The Kauffman Foundation, the leading entrepreneurship think-tank in the United States, has reported [pdf] a fall in employer startups during the Great Recession and a rise in the entrepreneurial activity rate, reflecting individuals who were "probably more likely to start sole proprietorships and other non-employer firms instead of more costly employer firms," during a period of high unemployment.

Then as the US economy improved, the level of individual entrepreneurial activity fell.

From 2011 to 2012, both the 35–44 and 55–64 age groups experienced slight increases in rates. Over the entire period, business creation was the lowest among the youngest group.

The 55–64 age group accounts for 23.4% of new entrepreneurs, up from 14.3% in 1996 (see below).

Sean O’ Sullivan, chairman of the Government’s new Entrepreneurship Forum, said: “"Ireland has always been a place full of dreamers and doers and that’s essentially what entrepreneurship is, a blend of the two.  As citizens, we must take on the responsibility of creating our own jobs, and figure out how to be more efficient, working at greater speed with higher innovation and reduced cost.  

“If we can field world-class rugby players, artists, and scientists, why can’t we also field world-class, fast-growing indigenous businesses?  An Ireland that restores economic growth is an Ireland that expands opportunity and quality of life for all its citizens.

“After the battering we’ve endured in recent years, we’ve got a long road ahead of us to return to being #1 in Entrepreneurship in Europe.  As Taoiseach Enda Kenny has made it clear, however, Ireland is 'open for business'.  Our challenge is to seize this opportunity, move quickly and boldly go beyond where we have ever been before."

Richard Bruton, enterprise minister, said: “Two thirds of all new jobs are created by start-ups in the first five years of existence. That is why we have placed entrepreneurship at the centre of our plans for jobs and growth."

A first step in a Reality Check would be to junk the lexicon of spin and the term 'world-class' is a much abused one in Ireland, when a less exalted aspiration would be a good base to develop from.

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