Faculty & Leadership Blog / Faculty in the News

Global Entrepreneurial Activity In 2009

The release of the GEM 2009 report was much anticipated. The 2008 data was collected in the early summer of that year, before the recession started to dominate the front pages of newspapers across the globe. The 2008 data didn’t show declines in entrepreneurial activity in general across the dataset of 43 countries, although fewer individuals believed there were good opportunities to start businesses. Everyone in GEM was just waiting to see what would happen in 2009. What would people’s attitudes about entrepreneurship be, now that we were deep into the recession? Would entrepreneurship rates decline because people weren’t taking chances, or increase because people needed to create a source of income?

The 2009 data, released January 14, shows mixed results. Most of the countries reported fewer individuals starting businesses (the U.S. among these), but others showed no change from 2008 (like China and Japan), and there were increases in some (United Arab Emirates and several South American and European countries). One type of business that declined broadly across the different countries was in consumer services. These tend to be local businesses with low resource requirements, yet likely with little cushion when sales are down.

I thought it was interesting to compare the U.S. and China. China’s entrepreneurship rate was nearly 19% in 2009, compared with 16% in 2007 (China didn’t participate in 2008). The U.S. rate dropped to 8% from 11% in 2008 (and 9.6% in 2007). Entrepreneurship in China is on a growth path, while it is relatively mature in the U.S., and likely sensitive to economic downturns. In addition, China’s government instituted a large economic stimulus plan and maintained 8.5% GDP growth in 2009, following 9% growth in 2008. The U.S., on the other hand, experienced negative GDP growth (-2.7%) in 2009 after almost no growth (.4%) in 2008.

But in both the U.S. and China, fewer individuals perceived good opportunities for entrepreneurship and fear of failure increased. In both countries, there were proportionately fewer businesses with significant international customers and more businesses based on necessity (started because of few or no alternative job prospects—rather than to pursue an opportunity). Some of these trends seen were apparent across the dataset. Fear of failure increased or stayed the same in all but one country. This measure had already increased the previous year in many countries, demonstrating a higher risk aversion over the past two years. In addition, more than half the entrepreneurs surveyed deemed it more difficult to start businesses.

While this pessimistic attitude was commonly held across the dataset, it wasn’t consistently associated with a downturn in entrepreneurship—many countries reported the same or increased entrepreneurship over previous years. Attitudes may be affected in the short term by current economic circumstances, but this is among a number of factors that can influence entrepreneurship. The widespread increase in necessity-based businesses could indicate that, even with negative attitudes, starting businesses is a necessity for many individuals.

I find it interesting that the most popular age group is in the 25-34 age range. This has generally been the case all along. Generally, while younger people are more willing to take risk—for one, they have less to lose (mortgages, kids in college, job seniority)–they have not built up the networks, credibility, or experience that is beneficial in starting businesses. As such, the increasing need for stability and accumulating personal assets work as opposing forces. We do encourage young people to get some experience and contacts before attempting to start a business, but if we want to increase new business starts, how do we prevent the risk aversion that tends to creep in with age? External capital from those that can afford to lose the money can help entrepreneurs, but as our colleague Bill Bygrave reports, most businesses start with money from founders, friends, and family. So entrepreneurs do take personal financial risks (or their loved ones do), and they must give up other career prospects. In addition, the GEM report shows that the greater the employment protection (regulations about hiring and firing) the less likely individuals will pursue high-growth expectation ventures. This demonstrates that we can’t just account for the high risk of entrepreneurship, but we also need to consider the benefits and stability of the next best alternatives.

The 2009 GEM report has many more messages to reveal. Seems like the more we learn about entrepreneurship, across the globe and over time, the more complex the picture gets.

Donna Kelley, Associate Professor