Monitor Group Issues Comprehensive Report Identifying How Regions around the World can Best Drive Entrepreneurial Success
August 27, 2009
In today's worsening economy, one of the most important roles governments, business leaders, and civic organizations can play is to take action to fuel entrepreneurship. Monitor Group, one of the world's leading advisory and consulting firms, today releases "Paths to Prosperity; Promoting Entrepreneurship in the 21st Century," a first-of-its-kind study that surveyed and interviewed entrepreneurs in 22 countries to determine attitudes and critical policies required for entrepreneurship to thrive in different regions around the world.
While the study concludes there is no one-size-fits-all answer to promoting entrepreneurship, it does identify its key drivers and enables countries, regions, and cities around the world better to understand their specific circumstances and deploy programs and policies that have led to successful high-growth entrepreneurship in similar environments. By determining what matters most in each region, and what is least likely to help in stimulating entrepreneurship, the survey allows policy makers to establish meaningful priorities that will help promote entrepreneurs in this time of economic decline.
"As countries around the globe continue to discuss stimulus plans and bailouts, a critical strategy that all governments should be looking at is how to encourage entrepreneurship locally through the application of specific policies that entrepreneurs themselves have indicated are disproportionally important to ensure new, viable companies emerge from the current crisis," said Pedro Arboleda, partner, Monitor Group and co-author of the report.
Results of the survey contradict conventional wisdom regarding entrepreneurship. Key findings of the report include: The preponderance of an entrepreneurial mindset in the population, as defined by specific values like individualism, a belief in the legitimacy of entrepreneurship as a career choice, and the capacity to recover quickly and without excessive social stigma from a failed business attempt. In the aggregate, these cultural components are significantly more important than other indicators in helping to explain entrepreneurial performance in a region.
Incubators, venture capital funds, and administrative burdens are not nearly as important as they are often made out to be. While venture capital remains critical for the growth of new businesses, it is seed capital that ultimately determines whether they are formed in the first place.
Financing strategies like public listings, spin-offs, and buy-outs showed a high correlation with actual levels of entrepreneurship worldwide. Aside from these strategies being an effective source of funding for expansion, the mere possibility of a future public listing acts as a powerful incentive for potential entrepreneurs, by promising very large rewards in return for the equally large risks and efforts they must take to launch their business.
Lowering income taxes, increasing deductions for entrepreneurship and providing the right incentives for the commercialization of research and development are likely to have a much greater impact than building incubators, or simplifying administrative and regulatory processes.
The teaching of entrepreneurial skills at all education levels, from elementary school through university, has a significant impact on levels of entrepreneurship throughout the world. Much is made these days of which countries produce the highest numbers of scientist and engineers. It is just as important to ask which countries produce the entrepreneurs that create the businesses where most of these scientists and engineers will work.
4 Models of Entrepreneurship Development
Monitor has worked on more than 150 regional economic development projects, leading to a comprehensive understanding of industrial clusters. To facilitate this process Monitor has mapped 94 percent of world GDP by competitive industry cluster. Most regions seek to emulate Silicon Valley, trying to encourage entrepreneurship through university spin-offs funded by venture capital. This "classic" model is wholly unsuited to the vast majority of regions in the world. Monitor has identified four different models of how entrepreneurship develops within specific economic and industrial settings.
In the classic model, intellectual property developed at or near major research universities is commercialized, often with the help of venture capital.
In the anchor firm model, large companies produce entrepreneurial ventures either through spin-offs or as employees depart to start their own business.
In the event-driven model, downsizing at established companies or research organizations forces and motivates entrepreneurial efforts by large cohorts of people.
In the local hero model, a local entrepreneur achieves great success and creates opportunities for more entrepreneurs.
China
China showed remarkably strong results in the Monitor Entrepreneurship Benchmarking Survey, ranking uniformly as one of the top countries in most policy areas. It seems clear that the entrepreneurial environment in China is growing stronger. Respondents suggest that Chinese entrepreneurs are a vibrant engine of growth.
In a number of areas, China's average responses actually exceeded other country means and placed it among the top two benchmarked nations. Among these areas are supply of equity capital, skills development, access to technologies, and attitudes towards income taxes, bankruptcy, and stock options. Indeed, a general belief in the possibilities of entrepreneurship seems to be growing prevalent among the Chinese population. China came in second in the Mindset component of the Entrepreneurship Benchmarking Survey, closely behind the United States.
This tallies well with other Monitor studies, including a general-population survey on attitudes and beliefs in China, where fifty-six percent of respondents said they think the Chinese economy will be driven by entrepreneurship rather than large private companies, and a striking 75% expressed interest in launching a new business as an entrepreneur. While it is well known that the expatriate Chinese are an entrepreneurial force throughout the world, there is now early evidence that a similar spirit of individual enterprise is spreading back home. This suggests that if China's recent growth has been primarily due to foreign investment and state-owned industry, it is likely to acquire a much more entrepreneurial tenor going forward.
Results from the Monitor Entrepreneurship Benchmarking Survey reveal three specific areas that will merit continued attention if China is to produce greater numbers of entrepreneurs:
Financing Finding capital at the earliest stage of business formation remains a challenge for many Chinese entrepreneurs. The Chinese government is setting up a seed fund for technology ventures. For later stages of financing, a greater variety of sources will remain necessary in the form of venture capital or bank loans to small and medium sized enterprises.
Angel Investors China needs more angel investors, not just because they are willing to fund businesses in their earliest stages but because they often provide the expertise and connections that make the difference between success and failure.
Spin-offs Corporate spin-offs could be especially important as China tries to move away from an economy dominated by state-owned giants into a more efficient, agile, and competitive system of production.