Recent Research I: Global Trends in Business Creation and Entrepreneurship Policy

Ten to forty percent of entrepreneurs launching businesses in high-income countries expect that more than a quarter of their customers will come from outside of their country, according to a new study of trends in global entrepreneurship.

 

The Global Entrepreneurship Monitor (GEM), a report prepared annually by researchers from Babson College and London Business School, provides insight into international entrepreneurship trends and the factors that influence the rate of new business creation. This year’s edition dedicates particular attention to the national regulatory environments and other policy-based factors that encourage entrepreneurs. It also provides a glimpse into the increasingly global nature of entrepreneurship.

 

New business formation rates demonstrate a U-shaped pattern across countries of varying levels of average income. Early-stage activity tends to be high in countries with low per capita gross domestic product (GDP), and then declines in middle-income nations. The figure then rises again for high-income countries such as the U.S., which continues to have one of the highest entrepreneurship levels among richer countries. Iceland, Hong Kong and Ireland also rate among the top high-income entrepreneurial countries. Several low-income countries have very high rates of business creation, including Thailand, Peru, Colombia and Venezuela, and far outpace even the top high-income countries, though the report does not provide information on the nature of these new companies.

 

Though its overall rate remains high, early-stage entrepreneurial activity in the U.S. decreased in 2006/07, according to the GEM Survey. Meanwhile, Australia, which also boasts a high amount of activity, has substantially increased its entrepreneurship over the last few years. Other countries that have shown significant entrepreneurial growth since 2002 include Finland, Netherlands and Japan, which continues to languish near the bottom of industrialized countries but has shown some progress.



The report discusses the contribution of international organizations, such as the World Trade Organization and free trade agreements such as NAFTA, in increasing the global rate of entrepreneurship. By opening up new markets and sometimes by providing financial support for new businesses, international organizations can create new international business opportunities for entrepreneurs. Hong Kong, the United Arab Emirates and Singapore rate among the top of high-income countries with a strong international orientation.

 

Some other findings:

• European Union countries display some the lowest rates of early-stage entrepreneurship among industrialized nations. Since many of these countries qualify as middle-income in the report, they frequently fall in the bottom of the U-shaped curve.
• The high-income countries with the most impressive rates of early-stage entrepreneurship also have the highest percentage of entrepreneurs who believe their ventures will enjoy high growth.
• Media attention to entrepreneurship and positive popular perceptions of entrepreneurship are strongly correlated with the rate of early-stage activity.

The authors also find the presence of burdensome bureaucratic requirements to start business significantly lowers a country’s rate of new business creation. GEM uses a “red tape” index, along with the World Bank’s “Doing Business” index, to evaluate the ease of launching an entrepreneurial venture. All else being equal, a high degree of red tape tends to dampen the desire to create and expand early-stage businesses. EU countries with lower rates of entrepreneurship frequently rank highly on the red tape scale.

 

Download the Global Entrepreneurship Monitor 2007 Executive Report at: http://www.gemconsortium.org/article.aspx?id=41