More Than Half of all Entrepreneurs Expect to Create Jobs in the Next Five Years
Fifty-five percent of entrepreneurs worldwide expect to create at least one job in the next five years—this according to the Global Entrepreneurship Monitor (GEM) 2016/17 Global Report released today with sponsors Babson College, Universidad Del Desarrollo, Universiti Tun Abdul Razak, and Tecnológico de Monterrey.
Yet globally, many factors are in play that could hinder such entrepreneurial growth. These include sophisticated technologies and communications that may enable entrepreneurs to operate on their own, rigid labor regulations, poor availability of skilled or educated labor, limited access to entrepreneurial finance, and the decision to stay small to avoid the complexities of formalization.
“The power of entrepreneurship to create jobs demonstrates its crucial importance to economic growth and stability around the world,” said Babson College Professor and GEM U.S. Team Lead Donna Kelley. “Whether this means alleviating regulatory burdens or offering specialized financial support, policy makers and private stakeholders will need to direct their attention toward policies and practices that can together strengthen the ecosystem that supports the efforts and ambitions of entrepreneurs.”
GEM countries in the 2016 survey cover 69.2 percent of the world’s population and 84.9 percent of the world’s GDP. In its 18th consecutive year, the report continues to serve as the largest single study of entrepreneurs in the world.
According to the Global Entrepreneurship Monitor (GEM) 2016 Global Report:
Over the past year, entrepreneurial activity remained stable or increased in approximately two-thirds of all economies surveyed in both 2015 and 2016.
More than two-thirds of all adults see entrepreneurship as a good career choice, and the same believe entrepreneurs are seen as high status.
Sixty percent believe entrepreneurs receive positive media attention. Among the highest levels reported are China, Thailand, and Indonesia, where more than three-fourths of adults see positive media attention for entrepreneurs, Greece, India, and Mexico report around half this level.
“Societies that value and promote an entrepreneurial culture are more likely to innovate which, in turn, creates long-term economic growth,” said Babson College Professor and GEM U.S. Team Member Mahdi Majbouri. “In the U.S., for example, entrepreneurs are often seen as celebrities and highly admired. It is clear, especially here, that positive media attention makes a valuable contribution to the entrepreneurship ecosystem. Enhanced visibility for entrepreneurs provides others with reputable role models, and points them in the direction of networks and resources. Such access could make the difference between a potential entrepreneur and an intentional one.”
On average, 42 percent of all working-age adults see good opportunities around them for starting a business. This perception is just about equal across all economic development levels, with only a 3 percent difference between factor-and-innovation-driven economies.
North America reports the highest rate of opportunity perception at 58 percent, however, this does not translate into robust entrepreneurial intention. Only 13 percent of North Americans intend to start a business in the next three years.
On the other hand, North America demonstrates the highest overall rate of entrepreneurial activity within existing organizations – 6.5 per cent. This behavior, called Entrepreneurial Employee Activity (EEA), includes the development and launch of new activities for an individual’s main employer, and accounts for more than half the average Total early-stage Entrepreneurial Activity (TEA) in innovation-driven economies. Africa reports the lowest rate of EEA at just 1 percent.
The GEM Global Report aims to provide academics, educators, policy makers, and practitioners with key insights into the interdependency between entrepreneurship and economic development, by
- Uncovering factors that encourage or hinder entrepreneurial activity, especially related to societal values, personal attributes, and the entrepreneurship ecosystem;
- Providing a platform for assessing the extent to which entrepreneurial activity influences economic growth within individual economies; and
- Uncovering policy implications for the purpose of enhancing entrepreneurial capacity in an economy.
GEM recognizes that there is no one-size-fits-all solution for promoting entrepreneurship across the globe. However, the report offers some suggestions that could serve as a basis for discussion about policies and practices that might support entrepreneurs and promote greater impact on their societies.
“The GEM annual survey and related reports and policy briefs provide academics, educators policy makers, and practitioners with relevant and up-to-date information about the multi-dimensional nature of entrepreneurship,” said GEM Executive Director Mike Herrington. “There is little doubt that evidence-based policy decisions can help to create a nourishing entrepreneurial environment that benefits entrepreneurs in all phases of their businesses that will ultimately help build more resilient economies.”
Job Creation Projections
- Fifty-five percent of all entrepreneurs, on average, expect to create at least one job in the next five years.
- One-quarter of entrepreneurs in innovation-driven economies expect to employ six or more people in the next five years (considered medium-to-high growth entrepreneurs).
– One-fifth of those in factor-and-efficiency-driven economies express this level of employment projections.
- North America contains the highest proportion of medium-to-high growth entrepreneurs at 25 percent, closely followed by Asia and Oceania (23 percent).
– Latin America and the Caribbean has the lowest proportion at 17 percent.
- Africa has, on average, the smallest proportion of non-employer entrepreneurs at 35 percent.
Societal Values about Entrepreneurship
- Over two-thirds of the adult population believe that entrepreneurs are well-regarded and enjoy high status within their societies.
– Africa reports the most positive attitudes towards entrepreneurship with three-quarters of working-age adults considering entrepreneurship a good career choice.
Seventy-seven percent believe that entrepreneurs are admired in their societies.
– Latin America and the Caribbean reports the lowest proportion of adults, on average, believing that entrepreneurs are well-regarded (63 percent).
Yet regionally, this region exhibits both the highest and lowest rates of the GEM sample in terms of the percentage of adults believing entrepreneurship is a good career choice (95 percent of Guatemalans compared to only one-fifth of Puerto Ricans).
– Europe has the lowest belief in entrepreneurship as a good career choice (58 percent) and the lowest media publicity for this activity (55 percent).
Positive perceptions about entrepreneurship as a career choice range from 40 percent among the Finns and Swiss, to 78 percent for the Netherlands.
– In Asia and Oceania, less than half of adults in India, Republic of Korea, and Malaysia see entrepreneurship as a good career, compared to 81 percent in Saudi Arabia and Turkey.
- Sixty percent of adults believe entrepreneurs receive positive media attention.
– Jamaica reports the highest levels of media attention (87 percent), consistent with its strongly positive perceptions about entrepreneurship (85 percent).
– Less than 40 percent of Greeks and Indians, and 41 percent of Mexicans feel that media pay attention to entrepreneurship.
– In India and Mexico, this is consistent with low beliefs about entrepreneurship as a good career choice and high status for entrepreneurs (less than 50 percent for both indicators).
Self-Perceptions about Entrepreneurship
- 42 percent of working-age adults worldwide see good entrepreneurial opportunities around them, yet only 22 percent demonstrate an intention to start a business in the next three years.
– Entrepreneurial intentions tend to be highest among factor-driven economies and lowest among innovation-driven.
– North America reports the highest rate of opportunity perception (58 percent), yet only 13 percent of North Americans intend to start a business in the next three years.
– The African population displays the highest levels of entrepreneurial intentions at 42 percent.
– Fear of failure levels in the innovation-driven economies are higher than for factor-and-efficiency-driven economies.
– Only one-third of potential entrepreneurs in factor-and-efficiency-driven economies feel constrained due to fear of failure.
– In these economies, more than half of the working-age population believe that they have the required skills to start a business.
– Individuals in Latin American and the Caribbean report the highest capability perception at 62 percent, and the second highest rate of entrepreneurial intention at 32 percent.
– Less than 40 percent of Europeans see any entrepreneurial opportunities, and less than half believe they have the skills to pursue them.
Phases and Types of Entrepreneurial Activity
- Across two-thirds of 51 economies studied in both 2015 and 2016, entrepreneurship rates were stable or increasing from 2015 to 2016.
– This includes a more than 50 percent increase in Egypt, Malaysia, and Netherlands.
- Average TEA rates tend to be highest in the factor-driven economies, decreasing with higher levels of economic development (17 percent in factor-driven and 9 percent in innovation-driven).
– Regionally, TEA rates are highest in Latin America and the Caribbean and in Africa. In both regions, roughly one-fifth of adults are engaged in early-stage entrepreneurial activity.
– Europe reports the lowest regional TEA rates, with three of the four lowest rates in this region. Italy, Germany, Malaysia, and Bulgaria all fall below 5 percent.
- In factor-and-efficiency-driven economies there are an average of six established business owners for every ten early-stage entrepreneurs.
– In innovation-driven economies, there are eight established business owners for every ten new ones.
- While negligible in both the factor-and-efficiency-driven economies, EEA accounts for more than half of the average TEA level in the innovation-driven group.
– Regionally, EEA is highest in North America and Europe (6.5 percent and 4 percent respectively). It is lowest in Africa at just 1 percent.
- Discontinuance is highest in factor-and-efficiency-driven economies (6 percent and 5 percent respectively), while rates in innovation-driven economies are, on average, half that of the other two groups.
– A lack of profits explains one-third of the exits across all development phases.
– In innovation-driven economies, just under one-third of all business exits occur for more positive reasons such as a sale, retirement, pre-planned exits, or the pursuit of another opportunity.
– In North America, 40 percent of entrepreneurs cite sale, retirement, pre-planned exit, or pursuit of another opportunity. Only 20 percent of entrepreneurs exit for lack of profitability (and only 9 percent cite problems with access to finance).
Gender and Age Distribution of Early-Stage Entrepreneurial Activity
- In factor-driven economies, men and women are almost equally likely to start a business out of necessity.
– Around one-third of these entrepreneurs started businesses because they had no better options for work.
- Regionally, women from Latin America and the Caribbean, Africa, and Europe are more likely to start businesses out of necessity, compared to men.
- In North America and Asia and Oceania, there is no difference in motivation between male and female entrepreneurs.
- In four economies, women report equal or higher entrepreneurship rates than men—Indonesia, Mexico, Brazil, and Malaysia.
– In the two Asian economies, more than 80 percent of women entrepreneurs are opportunity-motivated, reporting higher levels of opportunity motives than their male counterparts.
– The gender difference is particularly marked in Malaysia, with men twice as likely to be driven by necessity, compared to women.
- Among development levels, the factor-driven economies have the highest average female TEA rates, and the highest rate relative to men.
– In this development group, eight women were engaged in early-stage entrepreneurship for every ten male entrepreneurs in 2016.
– In innovation-driven economies, only six women, on average, were engaged in early-stage entrepreneurship for every ten male entrepreneurs.
– Regionally, Latin America and the Caribbean shows the best gender parity, with eight women engaged in early-stage entrepreneurship for every ten male entrepreneurs.
– Europe reports the lowest female involvement in early-stage entrepreneurial activity at just 6 percent.
– Europe also demonstrates the lowest gender parity—women in this region are only half as likely to be engaged in TEA as their male counterparts.
- The overall age pattern for entrepreneurship shows the highest participation rates among the 25-35 and 35-44 year-olds—people in their early and mid-careers.
– The factor-driven economies show relatively high participation among the 18-24 year-olds (almost double the rate for the innovation-driven economies).
– A similar pattern is seen in the oldest age group (55-64 year-olds), with the factor-driven economies reporting an average rate double that of the innovation-driven group.
- Regionally, Africa as well as Latin America and the Caribbean, show the highest levels of youth entrepreneurial activity at 16 percent.
– North America also shows rates above 10 percent in this age group.
- Latin America and the Caribbean have the highest proportion of older entrepreneurs (among both the 45-54 and 55-64 year-olds).
- Regionally, innovation intensity is highest in North America at 39 percent and lowest in Africa at 20 percent.
- Several economies show an encouraging trend of high TEA rates coupled with robust levels of innovation.
– Chile is a leader in this respect, where 24 percent of the adult population are starting or running a new business and of these, 57 percent stated that they are introducing innovative products or services.
Motivation for Early-Stage Entrepreneurial Activity
- Most entrepreneurs are motivated by opportunity, rather than necessity.
– The innovation-driven economies show the highest proportion of opportunity-motivated entrepreneurs at 79 percent.
– Seventy-one percent of entrepreneurs in efficiency-driven economies chose to pursue an opportunity as a basis for their motivations. In factor-driven economies, this rate is roughly 66 percent.
- Among entrepreneurs with opportunity-driven motives, a portion seek to improve their situation, either through increased independence or income (versus maintaining income). GEM refers to these as improvement-driven opportunity (IDO) entrepreneurs.
– GEM’s Motivational Index reveals that in factor-driven economies, there were 1.2 times as many IDO entrepreneurs as necessity-driven ones.
– In efficiency-driven economies, there were twice as many IDO entrepreneurs.
– In innovation-driven economies, there are almost four times as many.
Industry Sector Participation
- Roughly half of the entrepreneurs in the factor and efficiency-driven economies operate wholesale or retail businesses, compared to one-third in innovation-driven economies.
- Nearly half of the entrepreneurs in the innovation-driven economies (46 percent) started businesses in information and communications, as well as financial, professional, and other services industries.
– This is twice as many as in the other two development groups.
The Entrepreneurship Ecosystem
In 2016, GEM also deployed the National Expert Survey (NES), which focuses on environmental features that are expected to have a significant impact on entrepreneurial attitudes and activities, rather than on general economic factors. Experts were asked to express their views about the most important conditions that can either foster or constrain entrepreneurial activity and development in their country using a Likert scale of 1.0 (highly insufficient) to 9.0 (highly sufficient).
- Globally, physical infrastructure was rated the most positive condition of the entrepreneurship ecosystem, with average ratings above 6.0 across all three development phases.
- The weakest condition, with average values below 4.0, was school-level youth entrepreneurship education.
- The entrepreneurship ecosystem is strongest overall in the innovation-driven economies, while both the factor-and-efficiency-driven groups report several unfavorable conditions.
– These include R&D transfer, government policy and taxes, and bureaucracy.
- Ratings for government programs for entrepreneurship show wide variation between economic development levels.
– Factor-and-efficiency-driven economies give this condition a low rating of 4.1 and 4.0 respectively, while the innovation-driven average is 4.8.
- Ratings for post-school entrepreneurship education and internal market dynamics are very similar across all development levels.
About the Report
The 2016/17 Global Entrepreneurship Monitor (GEM) Global Report represents the 18th consecutive year GEM has tracked rates of entrepreneurship across multiple phases of entrepreneurial activity; assessed the characteristics, motivations, and ambitions of entrepreneurs; and explored the attitudes societies have towards this activity, worldwide. This report includes results based on 65 world economies completing the Adult Population Survey (APS) (between the ages of 18 and 64 years) and 66 economies completing the National Expert Survey (NES). GEM countries in the 2016 survey cover 69.2 percent of the world’s population and 84.9 percent of the world’s GDP. The aim of this report is to inform academics, educators, policy-makers, and practitioners about the multi-dimensional nature of entrepreneurship around the world, advancing knowledge and guiding decisions that can lead to the conditions that allow entrepreneurship to thrive.