Lessons from the Global Entrepreneurship Index

Written by Alexandru Dragos Ene, Vice President, Director of Communication, JADE – European Confederation of Junior Enterprises ’’The globalization of entrepreneurship is producing an explosion of programs, startup communities, policy interventions and investments across the world. Now, ideas, capital and talent speed across borders finding “founder teams” to create new ventures that fuel economic growth and stability. These are exciting times when a new generation of risk takers are leveling the playing field and creating new opportunities for more people.” (Jonathan Ortmans, President of Global Entrepreneurship Network)

By 2050, the less developed economies in the world will struggle to integrate into the labour force more than two billion young adults. By contrast, richer countries have to increase productivity in order to sustain their standard of living as their population starts aging and number of young people to fill new jobs will decrease. The idea that wealthy countries can help the world by creating enough jobs for everyone is shaking, and might as well shatter for good.

‘’The one solution that can provide jobs on that scale lies in a combination of innovation and entrepreneurship. Research on economic growth over the last 30 years has strongly emphasized that rapid job creation comes from rapidly growing companies.” (Jonathan Ortmans, President of Global Entrepreneurship Network) On the verge of radical policies all over the world aimed to regulate how contemporary society will tackle things such as global warming and increasing number of population, we must also look on what’s happening with our individuals. Are they actually capable of contributing to progress? Is the system helping them? The Global Entrepreneurship Index is the most extensive study available for free that analyses the level and entrepreneurship and entrepreneurial process quality in more than 100 countries in the world and the impact of entrepreneurship in local and regional economies. The release of the study happens each year during Global Entrepreneurship Week, by the Global Entrepreneurship and Development Institute (GEDI Institute), a non-profit organisation that advances research on links between entrepreneurship, economic development and prosperity. The institute was founded by world-leading entrepreneurship scholars from the George Mason University, University of Pécs and Imperial College London. Aiming for a more entrepreneurial society is about aiming to a better quality of life.  The GEI studies each year no less than 34 different variables clustered in sub-indexes. The GEI is composed of 3 areas: Entrepreneurial attitudes, entrepreneurial abilities and entrepreneurial aspirations. Entrepreneurial attitudes is about recognizing valuable business opportunities, having the skills to make something out of them, believing that entrepreneurs have a high status, knowing and interacting with other people who have start-ups, managing risks and generating new opportunities for others. A high level on this index generates cultural support, meaning a generally positive approach by the population and decreasing level of corruption. Entrepreneurial abilities refers to the percentage of entrepreneurial activity started from exploiting good opportunities, the technology absorption of the country, quality of education and entrepreneurs and also the level of success when it comes to market positioning of start-ups, in a way that they differentiate well from each other. Entrepreneurial aspiration is showing how product and process innovation, along with the drive to build and manage fast growing businesses with the goal to increase revenue by at least 50% in the first 5 years. It also shows how well the entrepreneurs do in terms of internationalization and how easy is to obtain risk capital. Each of these three building blocks of entrepreneurship influences the other two. Factor driven economies are in a very difficult situation when it comes to level of entrepreneurship. We see around the world how income is one of the prime drivers of entrepreneurial activity. In extreme cases, when income is under or just at the level of sufficiency, you cannot make any type of notable investment without the cost of life sustaining resources. The study shows a very strong relationship between entrepreneurship and economic development (correlation coefficient R2 = 0.78). This means that in the world, in the majority of cases, the higher the entrepreneurial index is, the higher per capita GDP goes. Among aspirations, abilities and attitude, entrepreneurial abilities sub index is the most correlated to economic development, meaning that, following that the 3 sub-indexes influence each other, a good strategy is to use aspirations and attitude pillars to foster the development of competences. This is why these areas are very important in education, both in formal and informal environments. We must not forget the implications of aspirations and attitude in self-directed learning and informal learning communities. One muse assume that entrepreneurs are efficient learners even outside the formal system. The figures still look very interesting though. If we look at the scores of the 130 countries from top to bottom, we will notice that few of them have the main weakness in the entrepreneurial abilities sub-index. Instead, aspirations and attitudes are equally falling behind. This is particularly interesting, because we tend to believe in general that our schools have outdated curricula. Which is right, but in a sense that we need to adapt the education environment, in order to let networking, knowledge exchange and internationalization flourish. One of the most entrepreneurial student networks in Europe, JADE, which a study from the European Commission shows that is particularly successful to convert students into start-up entrepreneurs, is also one of the most international. 40% of all JADE alumni say they have worked abroad in the first 2 and ½ years after getting out of the network. The top 25 entrepreneurial countries One of the most important mentions about the top 25 entrepreneurial countries in the world is that their sub-index rankings are also in the top 25 (with very few exceptions) which shows that these countries not only rule in overall scores, but also in most of the pillars of entrepreneurship described above. These countries have no notable weaknesses that would describe the group in general. There are a few outliers, for example Ireland’s low opportunity perception (score of 30). Instead, we can observe the following pattern of strengths: 1. Risk acceptance, cultural support and networking. In these countries, entrepreneurs generally do not believe that fear of failure is a main obstacle in their business. They also have a good image in society, as entrepreneurship is valued and consiedered worthy of respect. These countries are also good at fighting back corruption, and they provide opportunities for entrepreneurs to meet and know each other. 2. Technology Absorption These countries are also particularly good at absorbing new technology, especially in IT&C. 3. Process innovation These countries are very good at applying or creating new technologies in order to create new products. It also means that the percentage of GDP invested in research & development is one of the highest in the world. World differences With 21 out of 29 countries among the least 30 entrepreneurial countries covered in the study, Sub Saharan Africa’s main problem is the entrepreneurial attitude: Risk Acceptance, Networking, Cultural Support, and Opportunity Perception are very low, and we also very low quality education. While all these factors are very strongly correlated (even with high opportunity perception there is still a massive gap in start-up skills, and there is virtually no cultural support), there are still good news as the score for techology absorbtion is close the the World average, and growing. The Asia-Pacific region is striking in terms of differences of between top and low performers. There is also a quite big difference between China and India, the first ranking 50% higher than the second. Developed economies such as Korea and Japan seem to channel their innovation potential in large multinational companies, thus lowering the added value to the country itself. They also tend to have logistical chains that operate mostly at local level, which slows down growth. The emerging middle class will sometimes force democratization, which will help to let entrepreneurship flourish. Europe, as Asia, is also split between developed economies (western and northern countries) and developing ones, a Europe which carries the legacy of infrastructure build for heavy industry. The eastern countries suffer from relatively low entrepreneurial attitude and ability. Mainly because they have had a tradition of low initiative and low responsibility, cultivated by the political system of the previous decades. Though in 11 out of 12 pillars, Europe is above the world average for good, progress is still needed, as population here is aging rapidly. The authors believe thant change will be brought mostly by a the new generation. The crown goes, well, who would have guessed? Exactly, to North America. With U.S.A and Canada leading the world scores in the first two places, and even with a 75th placed Mexico, North America’s score is clearly the best and tops in Opportunity Perception.Canada should invest further in entrepreneurship education and training, and in Innovation in order to keep up with its neighbour which is continously growing. So, on the edge of 2014, what can we learn from this extensive study? First of all, we live in an incredibly diverse world. We cannot just compare countries and their economies without taking note on the different scenarios the history imprinted on them. This is why individuals are now one of the key common resources for development. And these people are no ordinary individuals, they are the new generation of entrepreneurs. Secondly, the new generation of entrepreneurs must be as agile thinking and efficient as ever, due to the fact that they have to be their own teachers in order to handle the interraction of so many entrepreneurial variables. This self directed learning is even more important considering the fact that the demand for new entrepreneurs is in developing economies. As one of the key factors for success being risk acceptance, they have to plan ahead, be wise and also take advantage of technology when efficient absortion occurs. Thridly, there is a high risk that very low developed countries will not see radical imporvement in entrepreneurship in the future, as there are so many pillars that depend each on the other. They may become resource mines for new big corporations, but still, young people there deserve a better chance. If I had to come up with a word that would describe the resut of successful entrepreneurial activity, it would be quality. Quality is so simple to feel, to recognise, to desire, that it’s hard to imagine the incredible macro processes that stand behind it, and how much time human kind has needed to develop a sense for it.