Entrepreneurs & Business Development Around the World
by Donald W. Hudspeth Esq.
by Donald W. Hudspeth Esq.
Introduction, Small Business and
Southern Europe’s Economic problems.
Because my Arizona business law firm
represents businesses and start ups, both locally and from around the world, I
was curious about the role
entrepreneurs, start ups, and small and medium size businesses play in
their national economies around the world. Surprisingly, one of the first
articles that I found attributed the financial problems of Greece, Italy and
Spain, in part, to the predominant role that small businesses play in their
economic systems.[1] In
this article Mr. Yglesias, writing for Slate.com, states that too many workers
work for too many small firms. 58% work for firms with fewer than 10 employees and
75% work for firms with fewer than 50 employees. In contrast in the United States
only 11% of workers are employed by companies with fewer than 10 workers and
only one-third work for firms with fewer than 50 workers.
Although not expressly stated, one problem seems to be that
local regulations do more than foster small businesses, they protect and coddle
them through restrictive licenses. Ironically, protecting local firms from
globalization seems to have destroyed the national economy. Like it or not the
economies of scale provided by larger global organizations appear to serve not
only the public but also the country as a whole. This is not exactly what I
wanted to hear when I set out to write this article. But, as small business –
or starting one’s own business – is often spoken of reverentially, like
motherhood, it is good to get the perspective. Still, as the Slate article
makes clear, business smallness is not the only, or necessarily the major,
cause of southern Europe’s economic problems; poorly functioning institutions
which favor personal connections over finely drawn regulations, policies and
procedures, contribute to the problem.
Europe.
The joke is that America is finally
discovering Europe.[2] The
question is what we will find when we get there. European countries have not
been particularly entrepreneurial. While Germans excel at business development,
they do so at the managerial (and perhaps engineering) level, not as
entrepreneurs. Germany has fewer than one-half the entrepreneurs of the US.
And, according to the Global Entrepreneurship Monitor, fewer European start ups
become big businesses. As quoted in The Economist, according to Janez Potocnik,
the EU commissioner for science and research, only 5% of European companies created
from scratch since 1980 have made it to the list of the 1,000 biggest EU
companies. 22% of US firms have made that transition. This being said a program
and article Online by National Public Radio states that “Europe is starting to
make its mark on the start up scene. Paris and Berlin are starting to hold
their own as more and more European startups look to compete on the global
stage and attract investors. ” [3]
Europe has the strength of cultural diversity. The French are
good at social interface. Russia, if it is considered part of Europe, is known
for its technology colleges and software development. Skype was a Swedish company using Estonian
computer programmers.
But, Europe has a mind set against
business failure. In the US prior business failure is accepted, and is almost a
precondition to venture capital financing for technology start ups. In Europe
business failure cannot only hurt you with the banks, but can keep you from
ever having a CEO position. In an environment where failure is not accepted,
risk taking is discouraged, and entrepreneurial activity cannot flourish. There
are likely to be fewer risk takers in a risk adverse society.
European law still makes it difficult to hire employees due
to the cost of social benefits. It is also difficult to fire employees, and
where employees cannot be fired fewer will be hired. So, rigidities in the legal
system discourage innovation. And, speaking of law, start ups in Europe have
the laws and social mores of 18 countries to deal with. This would be like
doing business in America when we still had the confederate states. A major
reason for the American Constitution was to form a national government so that
we could have uniform and non-discriminatory laws among the states. Before the
Constitution, economic activity was chaotic.
England and the United
Kingdom.
England, in creating its
international empire, created much of the global trade as we know it today. Because London has been a banking and
financial center for many years, we may think of England and the United Kingdom
as being highly entrepreneurial. In truth, not so much. According to Scott
Scheper of Gaebler Ventures,[4]
Total Entrepreneurial Activity (“TEA”) in England is about 6%, of which 8% is male
and 4% is female. And, in the UK entrepreneurship is primarily a youth
phenomenon with 18-24 year olds comprising the largest age group. Still, in the United Kingdom the
entrepreneurial trend is up which is not true of other European countries.
France.
While France may have invented the word “entrepreneur,” it
does not seem to have many of them. Entrepreneurs in France are a scarce
commodity. The French seem to lack the entrepreneurial spirit and instead want the
stability of a salary from the government or a large company.[5] Apparently, France’s egalitarianism mitigates
entrepreneurism. And the French economy
has strict regulations and high taxes, typically anathema to start ups and
small business growth. The government seems to be trying to provide statutory
exemptions and lower tax rates for start ups, but apparently without much
success. Still, in spite of itself, France was third, behind the UK and Germany
in venture capital firms in 2001. And,
in 2010, the French company, vente-privee.com pioneered “private flash sales”
which sparked interest around the globe.[6]
Germany.
What about Germany? It is an economic powerhouse. What
role do entrepreneurs play in that economy? According to international entrepreneurship .com, a source of much of the basic
information for this article, Germany has a relatively low TEA rate of 5.1 % --
24th in the world - even though it is first in spending on
entrepreneurs, and has government programs for entrepreneurial women. Reasons for the lack of stellar performance
by German entrepreneurs include social disapproval of individual enterprise as
well as high corporate and social security taxes.
Portugal.
Portugal has a low TEA rate of 3.95%
and entrepreneurship seems to be a relatively new concept there. Still, during
better times Portugal had a growth rate higher than the European Union average.
And, as one reviewer remarked, it is a beautiful country with ocean views and
cheap beer. Life has its compensations.
Croatia.
In addition to Portugal, Croatia is
another one of my favorite countries to visit. And, while teaching business law
at Arizona State University, I had students from there who I much admired. There is an entire doctoral dissertation by
Nikoline Fuduric online about entrepreneurial conditions of Croatia, if you
really want to study the subject, but otherwise the available information on
Croatia is that entrepreneurial activity is expected to rise.
Russia.
According to internationalentrepreneurship.com Russia has a TEA of only 2.5%. Barriers
to entry include high taxes, regulation, registration, and corruption, not to
mention Mafiosi and protection payments. What entrepreneurship and individual
business ownership exists in Russia seems to come from the takeover of
government enterprise, not from starting and building a business from scratch. Still, individual entrepreneurship was up 25%
from 1998 to 2001. Women seem to be a little more entrepreneurial in Russia due
to discrimination in pay and job opportunity.
Israel.
According to
the prominent Kaufman Foundation Policy Forum Blog, Israel is one of the most
innovative countries in the world. As stated in a recent article in the New
York Times, if the name ends in “man,” then the person is Jewish and that
includes Superman.[7] Many workers in Israel are employed by
smaller firms, many of which are in the forefront of technology.
Australia.
Australia’s TEA is up from its 2002
score of 8.7. According to Internationalentrepreneurship.com, in 1996, 97% of the business in Australia was
conducted by small businesses! The Swinburne University of Technology has its
Graduate School of Entrepreneurship. The country recognizes top women
entrepreneurs and has programs to foster them. In short, Australia seems to be
a paradise for entrepreneurs and collectively an economic powerhouse comprised
on entrepreneurs.
Japan.
According to The Economist,[8]
“Something must give” in Japan. “Japanese entrepreneurs are pressing for
change. The old guard resists.” Japan has one of the lower TEA rates in the
world – not even mentioned. Japanese culture has been built on lifetime
employment and seniority. Young bucks who challenge the system are viewed with
strict scrutiny and may find themselves under legal as well as social
pressure.
Canada.
According to a presentation by BDC,
prepared by the Fondation de l’entrepreneurship in July 2010 about 10.1% of the
businesses in Canada are individually owned. Its TEA rate is 8.9 with 11.2 % of
the population saying they want to start a new business and 4.6 actively
engaged in doing so. Overall, Canada has had a decline in new ventures.
China.
Entrepreneurship in China is an interesting case study of
“flying under the radar” in order to succeed. 90% of the businesses in China have fewer than
eight people and small business ownership increased by 30% per year between 2000 and 2009.[9] Business owners work without bank financing
and do not want to be known and identified. While they may buy luxury goods,
not only the workers in the plant, but the owners and office workers may work
without heat to save money. The Chinese
– and Asians in general - seem to be experts at deferred gratification, which
studies show is one of the major factors indicative of future success.
The United States.
According to The Economist[10]
between 1996 and 2005 the United States added 550,000 small businesses a month. The TEA for the United States is 11.3%. America
is the first country to ditch managerial capitalism – of the sort found in Germany,
or Japan and France – for entrepreneurial enterprise. After all, the country
was founded by innovators and risk takers.[11]
Here, one way to be a “rock star” is to own a start up.
America has several advantages
contributing to its entrepreneurial success:
1. mature
venture capital industry
2. the
symbiotic relationship between the university and industry,
3. open
immigration policy (many successful US companies, e.g. in Silicon Valley, are
owned by immigrants)
4.
“venturesome consumers,” as defined by Amar Bhide of Columbia University. We
are willing to try new products. In fact it seems that the “new thing” is in our
cultural DNA.[12]
Conclusion.
So, what have we learned? Well, as
the song goes. “God bless the USA.” We have a common culture which is accepting
of the entrepreneurial spirit, individual business ownership, risk-taking and
failure. We have mostly uniform and non- oppressive laws that make national
business success possible. The United States is still the place to be for start
ups, and immigrants -- if we let them -- will bring their money here to invest
it in business enterprise.
But, before we get too proud of
ourselves: I thought of my client from Uganda. According to internationalentrepreneurship.com Uganda
in 2004, Uganda had
the highest TEA index in the world: 31.6. And, according to FastCompany.com
29.3% of the business activity in Uganda was conducted by entrepreneurs or
managers of a new enterprise. Many of the entrepreneurs in Uganda are women,
including my client, who owns and manages a company which makes composite
blocks for construction.
[1]
Yglesias, Mathew “Southern Europe’s Small-Business Problem,” Slate.com. 2012/07. Web. 09 July 2012.
[2] The Economist, Europe’s Tech
Entrepreneurs, June 10, 2010. Web
July 7, 2012
[3] NPR,
“The Next Silicon Valley? Berlin Startups Catching Up with the Hype,” July
09, 2012. Web July 10, 2012.
[5] Internationalentrepreneurship.com
(a great source for information of virtually every country. Much of the
information for this article came from this site, supplemented by The
Economist, Gaebler.com. and the other
sources cited.
[6] The Economist, Europe’s tech
entrepreneurs, Blooming, June 10, 2010 from the print edition. Web. July
09, 2012
[7] Parker,
James. “Man of Action.” New York Times
Book Review, July 8, 2012 writing about the book Superman by Larry Tye.
(the creators of Superman, Jerry Siegel,
writer, and Joe Shuster, drawings, were geeky before geeky was cool.)
[8] Entrepreneurs in Japan, Something
must give, The Economist June 23rd 2001 from the print edition.
Web. .July 9, 2012.
[9] The Economist, Let a million
flowers grow, March 10, 2001.
[10] The United States of
Entrepreneurs, America still leads the world, The Economist, March 12 2009
from the print edition. Web. July 07, 2012.
[11]
Id.
[12]
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