BOOSTING OPPORTUNITY-DRIVEN ENTREPRENEURSHIP IN INDIA
Since 1999, the London Business School, Babson College, USA, and the Kansas City-based Kauffman Center for Entrepreneurial Leadership have jointly been conducting the Global Entrepreneurship Monitor (GEM) Programme, which addresses three questions: first, does the level of entrepreneurial activity vary between countries? Second, are differences in entrepreneurial activity associated with national economic growth? And third, what national characteristics are related to differences in the level of entrepreneurial activity?
The GEM 2001 assessment, based on surveys in 29 participating countries (sixteen from Europe, four from Asia, three from Latin America, two from North America, and four from other regions), uncovered one key dimension of entrepreneurial activity. Each respondent was asked to indicate whether he was starting a business to take advantage of a unique market opportunity (opportunity-driven entrepreneurship) or because it was the best available option (necessity-driven entrepreneurship). The average opportunity entrepreneurship prevalence rate across the 29 countries was about 6.5 per cent, while the average for necessity entrepreneurship was 2.5 per cent. Four countries ranked highest in opportunity entrepreneurship (in alphabetical order): Australia, Mexico, New Zealand, and the United States. Five countries ranked among the highest in necessity entrepreneurship (in alphabetical order): Brazil, India (at, 7.5 per cent, the highest), Korea, Mexico and Poland.
The analysis indicated that developing countries generally have a higher prevalence rate for necessity entrepreneurship. Several national contextual factors also influence the level of entrepreneurial activity. Opportunity entrepreneurship was higher where there was (a) a reduced national emphasis on manufacturing, (b) less intrusive government regulations, (c) a higher prevalence of informal investors, and (d) a significant level of respect for entrepreneurial activity. Necessity entrepreneurship was higher in countries where (a) economic development was relatively low, (b) the economy was less dependent on international trade, (c) an extensive social welfare system was lacking, and (d) women were not empowered enough in the economy.
These differences between opportunity- and necessity-driven entrepreneurship make it vital that India progresses from its current necessity-oriented entrepreneurship to more opportunity-driven activities. Among the policy implications of the findings, several are directly relevant to India. First, both general and entrepreneurship-specific education needs to be enhanced. Not only are those with limited education less likely to participate in entrepreneurial activities, they also tend to match their business aspirations with their levels of skill and knowledge. As a result, they generally emphasize less ambitious business activities.
Secondly, the regulatory burden on new and small firms needs to be reduced. The GEM-2001 assessment clearly identified government regulatory burdens as a major deterrent to higher levels of entrepreneurial activity. Governments should ensure that every aspect of their national economic system is supportive of entrepreneurship, including reducing and simplifying the regulatory burden, minimizing taxation, and lowering non-wage labour costs.
Thirdly, there is a need to facilitate greater levels of female participation. Women participate in entrepreneurship at about one-half the rate of men across all GEM-2001 countries. There is perhaps no greater initiative a country can take than to encourage more of its women to participate.
Finally, tolerance of diversity in personal income and wealth must be encouraged. GEM-2001 has indicated that greater diversity in household and personal income is consistently associated with higher levels of entrepreneurial activity. As long as this diversity reflects appropriate contributions to national economic growth, governments should ensure that policies reflect a recognition and acceptance of diversity in wealth.
The patterns of participation in opportunity and necessity entrepreneurship varied dramatically across the GEM-2001 countries. Cross-national comparisons for opportunity entrepreneurship show a range of prevalence rates that varies from 2 per cent for Israel to 15 per cent for New Zealand (the top three countries were Australia, Mexico and New Zealand, in alphabetical order).
The pattern for necessity entrepreneurship shows that the range in prevalence rates represents a 30-fold difference, from less than 0.25 per cent (ie, one in every 400 people) in Norway to approximately 7.5 per cent in India. Most developing countries, or those with a substantial developing sector, are at the high end of this measure. While very few countries have high levels of necessity entrepreneurship and low levels of economic growth, countries with the highest levels of necessity entrepreneurship are also the most under-developed. The more advanced countries tend to be clustered at the low end of the prevalence rates for necessity entrepreneurship. Six of the seven countries at or below 1 per cent are advanced European Union countries where substantial economic and social security programmes are in place.
The GEM’s finding of a low level of entrepreneurial activity in India (less than 1 per cent of the adult population invests in start-up businesses), compared with some other countries, can be explained in terms of three factors: cultural and social norms; financial support; and government policies.
The most pressing issue with respect to cultural and social norms is the public’s general attitude toward entrepreneurship. This includes the public’s support for and understanding of the importance of entrepreneurship in society. This attitude has the potential to be one of the greatest inhibitors to, or facilitators of, entrepreneurial activity. High motivation levels are required to deal with the uncertainties associated with an entrepreneurial career. Therefore, the social legitimacy (or lack of it) of entrepreneurship, the value society places on self-employment, and the reward for individualism and self-reliance are important factors in determining a nation’s entrepreneurial capacity. Additionally, if the uneven extent to which different sections of society embrace entrepreneurship results in perceived inequities in incomes, it leads to resentment.
In India, security and stability are highly prized when evaluating alternative career options, and an overwhelming majority considers entrepreneurship an undesirable career choice. This negative attitude to creativity and innovation significantly reduces the number of people engaged in starting new firms, which is the essence of entrepreneurship. Societal norms militate against entrepreneurship because there is little regard for the personal characteristics that define the entrepreneurial mindset, such as self-confidence, self-reliance, and personal drive. India lacks a culture that supports risk-taking— an essential pre-requisite for supporting higher levels of entrepreneurial activity. A willingness to accept failure, which is also associated with higher levels of risk-taking, is also lacking in India. Countries where the people understand and value innovation and risk-taking have learned that benefiting from entrepreneurship goes together with a willingness to accept some failures.
Availability of finance is an important factor in facilitating entrepreneurial activity. This is particularly true in the early stages of new ventures. New and growing firms cannot easily obtain equity funding. Debt funding, though relatively easy to obtain, is available only after equity funds are in place, because of the banking industry’s risk-averse investment philosophy. Growth is hampered by the scarcity and high cost of working capital, with financial institutions unable to appreciate the specific nature of entrepreneurs’ needs.
A supportive legal and regulatory framework is essential for new venture creation, and it is the responsibility of the government to provide it. The government can also support new and growing firms through such policy initiatives/instruments as favourable treatment with respect to taxes and procurement, as well as through special programmes designed to facilitate entrepreneurial activity, such as the setting up of incubators and technology parks, and provision of training programmes for entrepreneurs. In India, government policies are not seen as supporting new venture creation, and the time and effort required by start-up firms to comply with regulatory obligations is a major hurdle. The government programmes that do exist are not effective due to a lack of coordination between the agencies delivering them, and the people working for government agencies are not considered competent. The result is that those that need help cannot find it.
An individual’s capacity for entrepreneurship can be significantly enhanced through an education system that incorporates skill-based learning and the principles of a market economy. Education in India, however, is not oriented towards promoting entrepreneurial skills. This is particularly the case at the primary and secondary levels, though the situation is not much better in colleges and universities. There are, no doubt, institutes of excellence in the field of post-graduate management education, but these are too few in number for a large country such as India. The inclusion of entrepreneurship curricula at all levels of education, particularly in programmes that offer professional degrees, can certainly help stimulate start-up activities.
New technologies can serve as effective means of gaining entry into competitive markets, but only established firms have the resources to be able to afford the costs of R&D. Start-up ventures have to look elsewhere for R&D support, and it is therefore vital that the fruits of R&D done by universities and specialized institutes are effectively transferred to new ventures. In India, interaction between R&D institutions and industry is virtually non-existent, and so much of their achievements remain commercially unutilized by industry. Acquisition of the latest technologies is expensive, and there isn’t enough financial assistance from the government for this purpose. India does not lack a good science and technology base. What is missing are appropriate government policies to bring about effective transfer of knowledge. Universities, institutes of management and technology, and research bodies need to take the initiative in facilitating such transfers. One example of an institute that has set up an incubator to boost new venture creation is the NS Raghavan Centre for Entrepreneurial Learning at IIM-Bangalore.
The GEM 2001 assessment, based on surveys in 29 participating countries (sixteen from Europe, four from Asia, three from Latin America, two from North America, and four from other regions), uncovered one key dimension of entrepreneurial activity. Each respondent was asked to indicate whether he was starting a business to take advantage of a unique market opportunity (opportunity-driven entrepreneurship) or because it was the best available option (necessity-driven entrepreneurship). The average opportunity entrepreneurship prevalence rate across the 29 countries was about 6.5 per cent, while the average for necessity entrepreneurship was 2.5 per cent. Four countries ranked highest in opportunity entrepreneurship (in alphabetical order): Australia, Mexico, New Zealand, and the United States. Five countries ranked among the highest in necessity entrepreneurship (in alphabetical order): Brazil, India (at, 7.5 per cent, the highest), Korea, Mexico and Poland.
The analysis indicated that developing countries generally have a higher prevalence rate for necessity entrepreneurship. Several national contextual factors also influence the level of entrepreneurial activity. Opportunity entrepreneurship was higher where there was (a) a reduced national emphasis on manufacturing, (b) less intrusive government regulations, (c) a higher prevalence of informal investors, and (d) a significant level of respect for entrepreneurial activity. Necessity entrepreneurship was higher in countries where (a) economic development was relatively low, (b) the economy was less dependent on international trade, (c) an extensive social welfare system was lacking, and (d) women were not empowered enough in the economy.
These differences between opportunity- and necessity-driven entrepreneurship make it vital that India progresses from its current necessity-oriented entrepreneurship to more opportunity-driven activities. Among the policy implications of the findings, several are directly relevant to India. First, both general and entrepreneurship-specific education needs to be enhanced. Not only are those with limited education less likely to participate in entrepreneurial activities, they also tend to match their business aspirations with their levels of skill and knowledge. As a result, they generally emphasize less ambitious business activities.
Secondly, the regulatory burden on new and small firms needs to be reduced. The GEM-2001 assessment clearly identified government regulatory burdens as a major deterrent to higher levels of entrepreneurial activity. Governments should ensure that every aspect of their national economic system is supportive of entrepreneurship, including reducing and simplifying the regulatory burden, minimizing taxation, and lowering non-wage labour costs.
Thirdly, there is a need to facilitate greater levels of female participation. Women participate in entrepreneurship at about one-half the rate of men across all GEM-2001 countries. There is perhaps no greater initiative a country can take than to encourage more of its women to participate.
Finally, tolerance of diversity in personal income and wealth must be encouraged. GEM-2001 has indicated that greater diversity in household and personal income is consistently associated with higher levels of entrepreneurial activity. As long as this diversity reflects appropriate contributions to national economic growth, governments should ensure that policies reflect a recognition and acceptance of diversity in wealth.
The patterns of participation in opportunity and necessity entrepreneurship varied dramatically across the GEM-2001 countries. Cross-national comparisons for opportunity entrepreneurship show a range of prevalence rates that varies from 2 per cent for Israel to 15 per cent for New Zealand (the top three countries were Australia, Mexico and New Zealand, in alphabetical order).
The pattern for necessity entrepreneurship shows that the range in prevalence rates represents a 30-fold difference, from less than 0.25 per cent (ie, one in every 400 people) in Norway to approximately 7.5 per cent in India. Most developing countries, or those with a substantial developing sector, are at the high end of this measure. While very few countries have high levels of necessity entrepreneurship and low levels of economic growth, countries with the highest levels of necessity entrepreneurship are also the most under-developed. The more advanced countries tend to be clustered at the low end of the prevalence rates for necessity entrepreneurship. Six of the seven countries at or below 1 per cent are advanced European Union countries where substantial economic and social security programmes are in place.
The GEM’s finding of a low level of entrepreneurial activity in India (less than 1 per cent of the adult population invests in start-up businesses), compared with some other countries, can be explained in terms of three factors: cultural and social norms; financial support; and government policies.
The most pressing issue with respect to cultural and social norms is the public’s general attitude toward entrepreneurship. This includes the public’s support for and understanding of the importance of entrepreneurship in society. This attitude has the potential to be one of the greatest inhibitors to, or facilitators of, entrepreneurial activity. High motivation levels are required to deal with the uncertainties associated with an entrepreneurial career. Therefore, the social legitimacy (or lack of it) of entrepreneurship, the value society places on self-employment, and the reward for individualism and self-reliance are important factors in determining a nation’s entrepreneurial capacity. Additionally, if the uneven extent to which different sections of society embrace entrepreneurship results in perceived inequities in incomes, it leads to resentment.
In India, security and stability are highly prized when evaluating alternative career options, and an overwhelming majority considers entrepreneurship an undesirable career choice. This negative attitude to creativity and innovation significantly reduces the number of people engaged in starting new firms, which is the essence of entrepreneurship. Societal norms militate against entrepreneurship because there is little regard for the personal characteristics that define the entrepreneurial mindset, such as self-confidence, self-reliance, and personal drive. India lacks a culture that supports risk-taking— an essential pre-requisite for supporting higher levels of entrepreneurial activity. A willingness to accept failure, which is also associated with higher levels of risk-taking, is also lacking in India. Countries where the people understand and value innovation and risk-taking have learned that benefiting from entrepreneurship goes together with a willingness to accept some failures.
Availability of finance is an important factor in facilitating entrepreneurial activity. This is particularly true in the early stages of new ventures. New and growing firms cannot easily obtain equity funding. Debt funding, though relatively easy to obtain, is available only after equity funds are in place, because of the banking industry’s risk-averse investment philosophy. Growth is hampered by the scarcity and high cost of working capital, with financial institutions unable to appreciate the specific nature of entrepreneurs’ needs.
A supportive legal and regulatory framework is essential for new venture creation, and it is the responsibility of the government to provide it. The government can also support new and growing firms through such policy initiatives/instruments as favourable treatment with respect to taxes and procurement, as well as through special programmes designed to facilitate entrepreneurial activity, such as the setting up of incubators and technology parks, and provision of training programmes for entrepreneurs. In India, government policies are not seen as supporting new venture creation, and the time and effort required by start-up firms to comply with regulatory obligations is a major hurdle. The government programmes that do exist are not effective due to a lack of coordination between the agencies delivering them, and the people working for government agencies are not considered competent. The result is that those that need help cannot find it.
An individual’s capacity for entrepreneurship can be significantly enhanced through an education system that incorporates skill-based learning and the principles of a market economy. Education in India, however, is not oriented towards promoting entrepreneurial skills. This is particularly the case at the primary and secondary levels, though the situation is not much better in colleges and universities. There are, no doubt, institutes of excellence in the field of post-graduate management education, but these are too few in number for a large country such as India. The inclusion of entrepreneurship curricula at all levels of education, particularly in programmes that offer professional degrees, can certainly help stimulate start-up activities.
New technologies can serve as effective means of gaining entry into competitive markets, but only established firms have the resources to be able to afford the costs of R&D. Start-up ventures have to look elsewhere for R&D support, and it is therefore vital that the fruits of R&D done by universities and specialized institutes are effectively transferred to new ventures. In India, interaction between R&D institutions and industry is virtually non-existent, and so much of their achievements remain commercially unutilized by industry. Acquisition of the latest technologies is expensive, and there isn’t enough financial assistance from the government for this purpose. India does not lack a good science and technology base. What is missing are appropriate government policies to bring about effective transfer of knowledge. Universities, institutes of management and technology, and research bodies need to take the initiative in facilitating such transfers. One example of an institute that has set up an incubator to boost new venture creation is the NS Raghavan Centre for Entrepreneurial Learning at IIM-Bangalore.
