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Global Entrepreneurship Monitor 2008: Exports key role for entrepreneurs in High-Income Countries; Ireland fourth in group for Early-Stage Entrepreneurial Activity among 18-34 olds but lower for older workers

Encouraging global entrepreneurship is vital to improving economic growth worldwide according to the ninth annual Global Entrepreneurship Monitor (GEM) 2007/2008 Global Report.  In high-income countries and depending on the size of the national economy, 10-40% of early-stage entrepreneurs expect 25% or more of their customers to come from outside their country. GEM also found that the more burdensome a country’s business regulations, the lower the entrepreneurs’ expectations for growth.

Directed by Babson College and London Business School, and released in the US last last week, the GEM 2007 Report strongly recommends that entrepreneurs organize to achieve political influence to liberalize trade and investment policies on an international level.

New this year, GEM looked at early-stage entrepreneurial activity among global cities.

Niels Bosma, Utrecht University and Research Fellow, GEM Coordination Team, says that across GEM nations, differences in levels and characteristics of entrepreneurial activity are not only rooted in economics and development of institutions supporting entrepreneurship, but also in culture and demography.

“Still,” affirms Bosma, “we can observe a general tendency of a U-shaped relationship between the rate of early-stage activity and per capita GDP.  For lower income countries, a decline in the rate of early-stage activity may reflect economic progress and more job opportunities.” 

“The world economy needs entrepreneurs,” says Babson Professor and GEM U.S. team member Kent Jones, “and increasingly, entrepreneurs depend on an open and expanding world economy for new opportunities and growth-- through trade, foreign investment, and finance.  GEM research confirms that new entrepreneurial opportunities in all countries will expand if trade, entrepreneurship and economic growth are fostered, especially in the developing world.”

“This, GEM’s ninth annual review of entrepreneurial activity and perceptions, spans 42 countries and is the world’s largest research project focusing on entrepreneurs and how they affect national economic growth” says Professor Michael Hay, Director of GEM at London Business School. “It is a particularly important piece of research because no other exists that can provide consistent cross-country information and measures of entrepreneurial activity in a global context”.

Ireland is fourth after the US, Australia and New Zealand for Early-Stage Entrepreneurial Activity among 18-34 olds in High-Income Countries (page 24 of report) but the US, Australia and New Zealand score much higher for participation by the 45-64 age groups.

Beyond the construction sector, the Irish economy is dominated by the foreign-owned sector. Start-up in Ireland have been dominated in recent years by construction and related sectors. The decline will likely result in a fall in entrepreneurial activity.

Key Global Findings:

  • In general, the 2007 data continue to show that early-stage entrepreneurial activity tends to be high in countries with lower per-capita GDP, but declines in middle-income countries, and then rises again in higher income countries.  The country-by-country profile of TEA against per-capita income thus shows a U-shaped relationship.
  • A new feature of the GEM report this year presents early-stage entrepreneurial activity rates for global cities based on the GEM Adult Population Surveys 2001-2006. Early-stage entrepreneurial activity rates for global cities show a similar pattern as the rates at the country level but there are also cities with rates that diverge from this pattern. German cities stand out with the highest rates in comparison to the average country rate. Also, characteristics of entrepreneurship in global cities are different from characteristics at the national level.
  • Middle and low- income countries in Latin America and Asia display high rates of early-stage entrepreneurial activity.  Among middle and low-income countries, Thailand (26.9%), Peru (25.9%), and Colombia (22.7%) had the highest rates.
  • Countries in Eastern Europe and Central Asia traditionally have relatively low rates of early-stage entrepreneurial activity but the evidence for Croatia points at an increasing rate over the period 2002-2007. Instead, most Latin American countries tend to show a drop in early-stage entrepreneurial activity, which may be natural progression toward higher per capita income.  
  • As per-capita incomes rises in high-income countries, so does the rate of early-stage entrepreneurship. However, cultural demographic and institutional factors are also at play. Many EU countries consistently have relatively low rates of early-stage entrepreneurship. Iceland (12.5%), Hong Kong (10.0%) and the United States (9.6%) show the highest levels. Lowest rates were found in Austria (2.4%), Puerto Rico (3.1%), and Belgium(3.2%).                                                                     
  • Early-stage entrepreneurs from high-income countries are more likely to be opportunity-driven (as opposed to necessity-driven and finding no other option for work).  Wider job opportunities and social security offer more alternatives to entrepreneurship.  In Norway and Sweden, most early-stage entrepreneurial activity is part-time.
  • There is a strong correlation between the rate of early-stage entrepreneurial activity and the general population’s positive perceptions of their entrepreneurial skills and opportunities for starting a business.  Other factors associated with early-stage entrepreneurial activity are whether entrepreneurship is widely believed to be a good career choice, and the degree to which it is reported in the media.
  • Among high-income countries, the USA, Israel, Iceland, and Canada show the highest rates of high-growth expectation entrepreneurship (expecting to employ at least 20 employees five years from now).  Among middle and low-income countries, China has the highest rate followed by Argentina. 
  • Early-stage entrepreneurs are more likely than established business owners to claim they offer innovative products and face less competition in the marketplace. They also claim to use technologies that were not available to them a year earlier.  GEM also found that populations that embrace innovation will have higher levels of early-stage activity.
  • Early-stagers are young (25-34).  Men are more likely to start a business than women.  This gender gap is present among all age groups, but is relatively small for countries in Latin America and the Caribbean.
  • In an increasingly globalized economy, international economic institutions-- such as the World Bank and the World Trade Organization--exert a growing influence on entrepreneurs and their opportunities.  They do so directly through international trade agreements and indirectly by cultivating an economic flexibility and adjustment—building local market institutions, infrastructure, and financing-- in an open world economy. GEM strongly recommends that entrepreneurs organize to achieve political influence to liberalize trade and investment policies.
GEM found that the more burdensome a country’s new business regulations (according to national experts in the field), the lower the ambition for growth among a country’s entrepreneurs.

Entrepreneurship is going global—in some GEM countries, 40% of early-stage entrepreneurs expected 24% or more of their customers to come from outside the country.

GEM is a consortium of national teams, participating in the Global Entrepreneurship Research Association. Contact details and national teams’ micro-sites can be found on www.gemconsortium.org.  A selection of GEM data is available including an updated list of the growing number of peer-reviewed scientific articles based on GEM data.

One of the main GEM indices is the rate of early-stage entrepreneurial activity (TEA), which is the prevalence rate of individuals who are either involved in setting up a business or owner-manager of a new business (existing up to 42 months) in the 18-64 population.

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