Entrepreneurship Booming in Emerging Economies

Developing countries have experienced a boom in entrepreneurial activity over the last year, while entrepreneurs in the United States have created most of the 6.8 million new jobs added here since 2003. Those are among the key findings of new research released this month by Global Entrepreneurship Monitor (GEM).

The eighth annual GEM report measures entrepreneurial activity in 42 countries by surveying more than 2,000 people in each country. The 2006 data show a systematic relationship between a nation’s economic development and its level of entrepreneurial activity. Countries with the lowest Gross Domestic Product have seen a rise in start-up activity, according to the report. In the United States, on the other hand, early-stage entrepreneurial activity among people 18 to 64 years old fell to 10 percent from 12.4 percent in 2005. Among the countries in the survey, entrepreneurial activity is highest in Peru at 40.2 percent and lowest in Belgium at 2.7 percent, according to the report.

GEM researchers explain that the percentage of start-up businesses is higher in the poorest countries because there are fewer alternatives available for making a living in those places. Developing countries tend to foster innovation, creating room for entrepreneurs to replicate something locally that has been produced elsewhere, according to Maria Minniti, Research Director for the GEM Consortium and professor of economics and entrepreneurship at Babson College in Wellesley, Mass.

New business start-ups also rose significantly in China and India this year. Entrepreneurial activity in China is up to 16.2 percent from 13.7 percent last year. In India, meanwhile, one in every ten people is engaged in entrepreneurial activity, the report shows. But India also has the highest level of failed start-ups—at 15 percent—among the nations studied. Governmental bureaucracy and the presence of large companies in India make it more difficult for start-up companies to establish themselves, GEM researchers note.

For high-income countries such as Japan and the core nations of the European Union, early-stage entrepreneurial activity remains low, at 10 percent or less. While the proportion of people starting businesses in the U.S. dropped slightly in 2006, the level of entrepreneurship remains high compared to European countries such as the United Kingdom, where it hovers just above five percent.

Even in low-income countries, entrepreneurs are often driven by passion and opportunity, the study found. A majority of entrepreneurs across the world claim they are starting a business to capitalize on an opportunity, according to the report. Reasons for choosing the entrepreneurial lifestyle include the desire to be independent and to be passionate about work, Minniti said.

"Satisfaction is a big motivation for productivity," she added. In high-income countries, this translates into high percentages of entrepreneurs forsaking other career options to pursue an entrepreneurial opportunity. In Denmark, Norway and the Netherlands, that type of opportunity-driven entrepreneurship accounted for more than 90 percent of new start-ups.