At Washington State University’s Carson College of Business, we examine why nations differ in producing an entrepreneurial mindset.
When I talk with parents about my research, I like to pose the question: If your son or daughter called you from Harvard and said he or she was dropping out to start a business, as Bill Gates famously did, how would you respond?
Of course, we all know that Bill Gates later became the richest man in the world. While he eventually received an honorary doctorate from Harvard, Gates later noted, “Although I dropped out of college and got lucky pursuing a career in software, getting a degree is a much surer path to success.”
While surveys show that the majority of people in the U.S. see entrepreneurship as a good career, when we look at the numbers, we find that entrepreneurship is a fairly rare event. Most people take the “much surer path to success” and go to work at established companies. There are a variety of reasons why people choose the risky career path of starting their own business. However, there also are differences among nations that affect the rates of people choosing entrepreneurial careers.
The World Bank and the Global Entrepreneurship Monitor, a consortium of more than 300 universities and research organizations known as GEM, gather data on the rates on business startups and entrepreneurial activities from numerous countries around the globe. When I first saw these data, I was struck with two observations. First, entrepreneurship is a rare activity in terms of the percentage of the population that starts a business. Second, there is wide variation across countries.
According to the GEM study’s most recent data, the start-up rate for the U.S. was 4.9 percent of the population ages 18 to 64 years old. Japan was 1.3 percent, while the European Union and Africa averaged 3.2 percent and 13 percent, respectively.
Through our research, we ask the question of why there are differences across countries. During the last several years, we have looked at national differences in what some call the “rules of the game” for business.
A country’s cultural norms and values that promote entrepreneurial activities (e.g., tolerance of risk) and its institutional context (financial systems, educational systems, social security nets, and government systems) together make up the rules of the game. This view of the context that promotes or inhibits entrepreneurship is now often called the entrepreneurial ecosystem. An ecosystem implies that there are complex interactions among the characteristics of nations that affect whether or not the people predisposed to become entrepreneurs actually choose to do so.
This research has implications for business at two levels, the first being understanding the effects of national entrepreneurial ecosystems on risk-taking activities. This can have implications when it comes to government policies and fostering the entrepreneurial spirit of the country.
For example, the government in Malaysia found that people didn’t believe they had the skills to start a business; they used this research to develop policies that improve the capabilities of entrepreneurs with coaching, training, and funding.
Second, businesses increasingly must seek new markets and customers outside of their home country, and that often requires partnering with local companies. Understanding the local entrepreneurial environment becomes paramount as they set up local operations, deal with local competition, and cope with local business practices and the attitudes of the local workforce.
For example, Enprecis, a Seattle-based technology company that provides the automotive industry with real-time customer feedback and satisfaction regarding vehicle quality, now has offices in 10 countries and deals with 12 carmaker brands, such as Hyundai, Kia, and Mazda. The expectation is to move increasingly into emerging markets. To succeed, Enprecis partnered with local companies in those markets to understand the needs of their partners’ customers.
In the Carson College’s international management courses at the undergraduate and MBA levels, we have students form teams to develop a plan to take a small business into an international market, typically focusing on one country. Ideally, these projects use existing businesses. For the undergraduates, this is often the student’s family business.
One interesting case was a Washington family business that produced cremation urns. In predominately Catholic Mexico, cremation was rare as the Catholic Church formerly forbade it. When the church ended this prohibition, the business owners saw an opportunity to internationalize. Adding to the opportunity was the decreasing space in cities, such as the lack of grave spaces in Mexico City.
Alternatively, for the MBA students, the projects often use the business where the student is employed. The students do a traditional international market entry analysis looking at factors such as size of the potential market in the country, local competition, local government policies regarding foreign firms, and cultural values regarding the product or service and the demographics of the population.
However, based on our research on the differences of entrepreneurial activities across the globe, the classes also approach the market entry decision with a different lens. We focus on the entrepreneurial ecosystem as a key factor to consider when picking a country in which to do business. The entrepreneurial potential of the country can create opportunities for foreign firms to discover new ways to innovate their products and services that might not exist at home.
Importantly, not all entrepreneurship originates from the individual working alone—entrepreneurs can exist inside businesses. For example, 22 percent of employees in Sweden reported taking a leading role in entrepreneurial activity in companies, according to a recent GEM study. This means that foreign firms can take advantage of differences in the entrepreneurial characteristics of the local labor force. If you want to have foreign employees work with your company to innovate, seek out nations that have a greater entrepreneurial mindset.
Although globalization has increased the opportunities and sometimes the necessity of doing business in other countries, there remains a great deal of differences among the nations in the world. Differences in culture, religion, political ideologies, are financial systems and language are difficult to ignore.
Businesses that currently are engaged in international business, as well as the next generation of international business leaders, also must look at innovation and entrepreneurship as parts of the competitive landscape.
John Cullen is the Huber Chair of Entrepreneurial Studies and Associate Dean of Graduate Programs at Washington State University’s Carson College of Business.
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