sfs seminar-entrepreneurial framework conditions gem paper

8/2/2019 SFS Seminar-Entrepreneurial Framework Conditions GEM Paper

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Entrepreneurial Framework Conditions and ActivityLevels in India:

Results of a National Survey Compared with the Global Scenario*

(Source paper for the key-note address to be delivered at theNational Seminar on Small Scale Industries: Challenges and Opportunities

Organized by Entrepreneurship Forum of St. Francis de Sales College,

in association with Bommasandra Industries Association, atST. FRANCIS DE SALES COLLEGE, ELECTRONICS CITY, BANGALORE, on 3rd March 2012)

By

Mathew J Manimala

Professor of Organizational Behavior and Chairperson-OBHRM AreaIndian Institute of Management Bangalore

India

* Reproduced with permission from the proceedings of the 3rd IEF Conference.[Original reference: Manimala, Mathew, J. (2003) Entrepreneurial Framework Conditions

and Activity Levels in India: Results of a National Survey Compared with the Global

Scenario, Paper presented at the 3rd International Conference of the InternationalEntrepreneurship Forum (IEF) on Entrepreneurial Innovation, Indian Institute of

Management, Bangalore, 6-8 March 2003]. The research reported in this paper is based on

the GEM India Report 2002, which is part of the international research project Global

Entrepreneurship Monitor (GEM) carried out under the jointly initiative of the LondonBusiness School, UK, and Babson College, Boston, USA.


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Results of a National Survey Compared with the Global Scenario

Abstract

It is a widely accepted hypothesis that one of the major influences on economic growth is the

level of entrepreneurial activity in the country. The latter, in turn, is presumed to be influenced by

the prevailing entrepreneurial climate, alternatively called the entrepreneurial framework

conditions (EFCs). As a major research effort for ascertaining the relationships among these three

variables, the Global Entrepreneurship Monitor (GEM) project, launched in 1999, has attracted

world-wide attention. The project was initiated jointly by the London Business School, UK and

Babson College, USA, had an initial membership of 10 countries in 1999, and has grown into a

37 country strong gigantic research project in 2002 representing more than 60% of the worlds

population. This research effort in India has since 2000 been co-ordinated by the N S Raghavan

Centre for Entrepreneurial Learning (NSRCEL) at the Indian Institute of Management Bangalore

(IIMB). A summary of the findings of the GEM India 2002 research is presented in the followingpaper. Apparently India does not conform to the GEM theoretical model fully. While the

countrys Entrepreneurial Framework Conditions (EFC) are rated to be about the average or

below, the level of entrepreneurial activity at 17.9% is the second highest among 37 countries

after Thailand (18.9%). It was also noticed that while the level of entrepreneurial activity was on

the increase from 8.97% in 2000 to 17.88% in 2002, economic growth for the correspondingly

previous years showed a decline. While it is expected that economic growth and entrepreneurial

activity would show similar trends, they are seen to be moving in the opposite direction in India

during the period under study. The reason for such anomalies may be explained by the fact that

among the entrepreneurial start-ups reported in the GEM adult population survey in India, there

were very few innovative or growth oriented ones. The results may once again reinforce the

critical role of innovative enterprises (not first any businesses particularly of the subsistence

variety) in stimulating economic growth.


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Results of a National Survey Compared with the Global Scenario

19.1 Introduction

In recent times several Indian high-tech entrepreneurs have proven their worth abroad especially

in the US. However, Indians do not seem to be as entrepreneurial in India, notwithstanding the

fact that there are a few cases of world-class Indian high-tech enterprises created in India in

recent times. The phenomenon of differential levels of entrepreneurship in different countries has

been a matter of abiding interest among academic researchers as well as policy makers. If Indians

can be more entrepreneurial abroad than in India especially in high-tech areas, the difference

should be attributed to the business environment in India, not to the competencies or the lack of

them among the Indian people. The same may be said about other people and other countries too.

There are a few research questions that become pertinent against the phenomenon of differential

levels of entrepreneurship among countries.

(i) Are there differences among countries in terms of the levels of their entrepreneurial

activity?

(ii) Are these differences linked to the Entrepreneurial Framework Conditions (EFC)

prevailing in the respective countries?

(iii) Is there any relationship between the economic growth of a country and the levels of its

entrepreneurial activity?

The empirical testing of the above relationships would naturally require data from several

countries. It is with this objective in view that the Global Entrepreneurship Monitor (GEM)

project was launched in 1999 at the joint initiative of the London Business School, UK, and the

Babson College, USA. The strength of the research consortium in the first year was 10 countries,

which got enlarged to 21 in 2000, 29 in 2001 and 37 in 2002. India joined the GEM research

consortium in the year 2000. N S Raghavan Centre for Entrepreneurial Learning (NSRCEL) at

the Indian Institute of Management Bangalore (IIMB) has been the nodal agency for carrying out

this research in India in terms of providing the research team as well as the funding support. The

present paper reports on the GEM India research carried out during the year 2002 with

appropriate references to the comparative data from the previous years as well as from the global

scenario as represented by the data from 36 other countries in the consortium.

19.2 The GEM Conceptual Model

As mentioned above, the Global Entrepreneurship Monitor (GEM) project is a multi-country

research project aimed at assessing the level of entrepreneurial activity in the participating

countries and linking it to the entrepreneurial framework conditions (EFCs) prevailing in the

countries on the one hand, and to their projected economic growth on the other. A simplified

version of the GEM Conceptual Model is presented below (see Figure 19.1).


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FIGURE 19.1: GEM Conceptual Model (Simplified Version)

Entrepreneurial Level of Projected

Framework Entrepreneurial Economic

Conditions Activity Growth

The causal relationships implied in the model are at two levels:

(1) the supportiveness or otherwise of the entrepreneurial framework conditions influences

the level of entrepreneurial activity, and

(2) the level of entrepreneurial activity influences the economic growth.

It may be noted that such macro-level relationships can be tested only by using data from several

countries and hence done by the GEM global research team. At the level of individual countries,

the GEM research effort is mainly a fact-finding mission to assess the supportiveness of the

entrepreneurial framework conditions and the level of entrepreneurial activity in the country.

19.3 The GEM Research Methodology

Since the GEM research involved the collection of three different types of data, the methodology

used for data collection differed accordingly. The methods used for collecting the different types

of data are described below.

(A) In order to assess the supportiveness of the entrepreneurial framework conditions in a

country, it was necessary to define the various components of EFC. This was done by an

international consortium of researchers who originally selected the following nine

components of EFC:

(1) Financial Support to New Firms

(2) Government Policy on New Firms

(3) Government Programs for New Firms

(4) Education and Training Support

(5) Research and Development Transfer

(6) Commercial, Legal and Professional Infrastructure

(7) Market Openness and Ease of Entry

(8) Adequacy of Physical Infrastructure

(9) Appropriateness of Social and Cultural Norms

These nine framework conditions were later expanded to 14 in the current year by splitting oneand adding four others. The original dimension of Socio-cultural Norms got split into Social

Support and Cultural Norms. The four additional aspects that were investigated in 2002 were:

(i) Opportunities for New Venture Creation,

(ii) Entrepreneurial Capacity,

(iii) Intellectual Property Rights Law and its Enforcement, and

(iv) Facilitation for Women Entrepreneurs.


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Data on the above 14 dimensions were collected by way of experts assessment. The method was

to interview 36 selected experts (4 each in the original nine framework conditions) and also to

get their quantitative assessment of EFCs on a structured questionnaire. During the current year,

the useable questionnaires were only 34, and the quantitative analysis was done based on those

responses.

(B) The level of entrepreneurial activity was assessed through an adult population survey. Astratified random sample* from the adult promotion was chosen from each country and the

chosen respondents were asked if they were engaged in any of the four types of activities

that may be characterized as entrepreneurial in some degree. The four types of

entrepreneurial activity thus identified were as follows (in the decreasing order of their

entrepreneurial content):

(i) Autonomous start-up of a business;

(ii) Owning and managing a business;

(iii) Start-up of a new venture/project as part of ones job; and

(iv) Angel funding of someone elses business.

In computing the Total Entrepreneurial Activity (TEA) index, however, only the first two of theabove were considered with appropriate weightages. The weightages were decided on the basis

of various criteria. For the autonomous start-up group, these would be the intensity of start-up

activity in the past one year, the expectation and extent of ownership, etc. For an owner-managed

firm, the main criterion would be the age of the enterprise; if it was older than 42 months, it

would not be treated as a start-up. The assumption here is that firms older than 42 months would

need more of management than entrepreneurship.

Such a norm was developed by the consortium of research teams based on the collective

experience of the participating countries about the time required for enterprises to tide over the

start-up phase and stabilize. It may be noted that some business communities in India believe in

a 1000-day syndrome of enterprise survival; that is, if a business has survived its first one

thousand days, it can be considered to have passed the entrepreneurial stage and is expected to

continue surviving. While the computation of the TEA index is the major outcome of this part, it

would also lead to the identification of a few characteristics of the entrepreneurial individuals

and firms.

(C) The macro-economic data on projected economic growth, total population, total labour

force (that is, the number of people in the 18-64 age group), enrollment in educational

institutions at various levels, number of people using computers/internet/mobile phones,

and so on, were collected from reliable sources such as the publications of the

governments and the various international agencies. Some of these data were used for

developing the weightage systems for various indices as well as for identifying

correlations with TEA index where relevant; the data on projected economic growth were

used for assessing the correlation between this variable and the level of entrepreneurial

activity. Such relationships can, however, be established only at the global level analysis.Analysis at the level of a single country will not establish any relationships among the

* Note: A change in the sampling procedure was effected in the Indian study this year. In the

previous years, the locations were also selected by a random procedure, which led to the exclusion ofmajor centres and the distortion of the urban-rural proportions. In the current year therefore we

adopted a stratified sampling procedure to select locations in the first stage in order to ensure proper

representation of all regions and the urban-rural conditions. The random procedure was adopted in the

second stage to select the individuals from the locations identified. The final sample thus corresponded

to the 70:30 rural-urban proportions and bad representation for most regions.


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macro-variables. Hence what is presented in this paper is more of a status report on the

level of entrepreneurial activity among individuals/firms in the country and an assessment

of the prevailing entrepreneurial framework conditions.

19.4 Findings of the Global Project*

The findings of the GEM 2002 global project are summarized below. This is based on the data

analysis done at the global level involving inputs from 37 countries.

1. 12% of the worlds population in the 18-64 years age-range are entrepreneurial. The

number involved is estimated as 286 million individuals out of 2.4 billion adults from the

37 GEM 2002 countries. Since these countries represent 62% of worlds population, the

total number of entrepreneurial individuals in the world would be about 460 million.

2. The level of entrepreneurial activity varies from country to country. In 2002 it was less

than 3% for countries like Japan, Russia and Belgium and more than 18% for countries

like Thailand and India (see Figure 19.2). If the country groups were to be graded from

low to high on entrepreneurial activity, the order would be as follows:

(i) Developed Asian countries,

(ii) East European countries,

(iii) European Union,

(iv) Former British colonies outside Asia,

(v) Latin American countries, and

(vi) Developing Asian countries.

3. The level of entrepreneurial activity changes over time. There was a decline of 25% in the

world average between 2001 and 2002. However, it increased by 6.3% in India during the

same period.

4. The demographic profile of entrepreneurs suggests that about two-thirds of them are

men and one-third women.

5. In this ratio, there is no difference between developed and developing nations.

Apparently it is not a function of womens liberation or gender equality. The

largest represented age-group is 25-44.

6. The motivation for start-up is the availability of opportunities for about two-thirds and the

necessity of earning a living for about one-third.

7. The level of entrepreneurial activity changes over time. There was a decline of 25% in theworld average between 2001 and 2002. However, it increased by 6.3% in India during the

same period.

8. The demographic profile of entrepreneurs suggests that about two-thirds of them are men

and one-third women.

FIGURE 19.2: Total Entrepreneurial Activity (TEA) by Country

*Source:Reynolds et al, GEM 2002 Executive Report


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9. In this ratio, there is no difference between developed and developing nations. Apparently

it is not a function of womens liberation or gender equality. The largest represented

age-group is 25-44.

10. The motivation for start-up is the availability of opportunities for about two-thirds and the

necessity of earning a living for about one-third.

11. Of the businesses created by the start-up firms, a very large proportion (93%) arereplication of existing businesses; only 7% are based on new products/markets. Far fewer

firms expect to provide 20 or more jobs in five years. The business sectors involved are

also very conventional, with retail sales, restaurants and bars constituting about 50%.

12. In correlating the level of entrepreneurial activity with projected economic growth, it was

found that necessity-based entrepreneurship is strongly correlated with projected

economic growth, but not the opportunity-based entrepreneurship, which was rather

difficult to explain.

13. In assessing the entrepreneurial framework conditions, the overall assessment of the

national experts was focused on changes needed in three conditions;

(a) government policies,

(b) cultural and social norms, and

(c) education and training.

(d) Another condition was assessed to be of intermediate importance, which was

financial support.

19.5 Findings of GEM India 2002


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As explained above, the GEM national research is based on the assessment of the following two

conditions in the country:

(i) Assessment of the entrepreneurial framework conditions in the country,

(ii) Assessment of the level of entrepreneurial activity in the country.

The findings of each of these studies are briefly outlined below:

19.5.1 Assessment of the Entrepreneurship Framework Conditions (EFCs) in India

Though the GEM research started with nine framework conditions, it got expanded to 14 this year

(see the explanation above). In 2002 the experts ratings on practically all the EFCs in India are

about the average or less.

The ratings on the countrys EFCs and their comparisons may be appreciated better from Tables

19.1, 19.2, 19.3, & 19.4. These tables are about following aspects of EFCs respectively:

(a) Ratings on specific components of EFC along with the GEM global averages as well as

the highest and lowest scores among the 37 countries (see Table 19.1),

(b) Classification of Indias EFC components in comparison with GEM 2002 averages (see

Table 19.2),

(c) Classification of Indias EFC components comparing the 2002 ratings with the 2001

ratings based on items common between the two years (see Table 19.4), and

(d) A frequency count of the number of times the EFCs are mentioned as problem areas by

the experts during the current year as well as the previous years (see Table 19.3).

The tables are self explanatory and hence the ensuing comments will be very brief:

1. The figures in Table 19.1 show that Indias scores are about the GEM global average or

less on most of the EFC-components. A noticeable change from the last year is that India

does not have the distinction of being the lowest on any of the EFC components with

reference to the aggregate scores on each component though not with reference to the sub-

variables within the components as we shall see later. (In 2001 India was rated lowest

among 29 countries on the quality of physical infrastructure).

2. From Table 19.2, it appears that the areas (such as commercial/professional infrastructure,

opportunities for new venture creation, knowledge and skills on the part of the individual,

and financial support) where privatization is relatively strong and the individual is more

empowered than the system are getting more favourable assessments. One of the obvious

inferences from this would be that entrepreneurship is stimulated if private participation is

progressively expanded to more and more areas of our economic and social life.

TABLE 19.1: National Framework Conditions: Findings from the Experts Survey (2002)


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Scale: 1 Completely False

Scale: 5 Completely True

India

2000

India

2001

India

2002Lowest Highest

Average

GEM

2002

Financial Support to New Firms 3.19 3.18 2.88 1.7

Argentina

4.12

US

2.86

Government Policy on new

Firms

2.40 2.30 2.17 1.41

Argentina

3.57

Singapore

2.54

Government Programs for New

Firms

2.28 2.27 2.33 1.62

Argentina

3.43

Ireland

2.64

Supportiveness of the Education

Systems

2.06 2.13 2.02 1.62

Japan

3.13

US

2.31

Research and Development

Transfer

2.72 2.40 2.31 1.9

Argentina

3.48

Canada

2.51

Commercial, Legal, and

Professional Infrastructure

3.26 3.27 3.23 1.99

Japan

4.2

Canada

3.16

Market Dynamism and Ease

Entry

3.14 2.72 2.49 2.43

Finance

3.41

C. Taipei*

2.78

Adequacy of Physical

Infrastructure

2.73 2.90 3.20 2.98

Hungary

4.79

Canada

3.85

Cultural Facilitation of

Entrepreneurship@- - 3.21 2.62

Norway

4.44

C. Taipei*

3.31

Opportunities for New Venture

Creation**

- - 3.47 2.52

Argentina

3.98

US

3.27

Skills for Managing New &

Growing Ventures**

- - 2.55 1.72

Japan

3.41

Hong Kong

2.52

Social Support for

Entrepreneurship@- - 3.21 2.62

Norway

4.44

C. Taipei*

3.31

Intellectual Property Rights (IPR)

Law and its Enforcement**

- - 2.20 2.04

Argentina

4.01

Australia

3.10

Facilitation of WomensEntrepreneurship** - - 2.60 2.25Japan 3.96Hong Kong 3.15

*Note: C Taipei (Chinese Taipei) is the politically acceptable name of Taiwan

** Note: These dimensions were introduced in the year 2002, and hence there are no

comparative figures for the previous years.

@Note:The two items marked @ were combined in the previous years assessment, and hence

separate figures for comparison are not available.


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TABLE 19.2: Framework Conditions: India Vs. Global Average (2002)

Worse than the Average About the Same as the

Average

Better than the Average

Government policy on new

firms

Financial support to new firms Commercial, legal and

professional infrastructure

Government programs for newfirms

Skills for managing new &growing ventures

Opportunities for new venturecreation

Entrepreneurial capacity and

the education system

Research and development

transfer

Market openness and ease of

entry

Adequacy of physical

infrastructure

Appropriateness of social and

cultural norms

Social support for

entrepreneurship

Intellectual property rights

(IPR) law and enforcement

Facilitation of womens

entrepreneurship

TABLE 19.3: Framework Conditions: Indias 2002 ratings compared with 2001 ratings

Worse than 2001 rating About the same as 2001

rating

Better than 2001 rating

Government policy new firms Cultural facilitation ofentrepreneurship

Government programs for newfirms

Supportiveness of the

education system

Financial support to new firms

Research and development

transfer

Adequacy of physical

infrastructure

Commercial, legal andprofessional infrastructure

Market dynamism and ease of

entry


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TABLE 19.4: Significant Issues Mentioned by National Experts (2002 compared with the

previous years)

Number of Mentions

GEM 2000 GEM 2001 GEM 2002

1. Education and Training 12 8 65

2. Cultural and Social Norms 16 15 563. Barriers to entry/Ease of entry 2 - 35

4. Financial Support 16 15 34

5. Government Policies 22 35 31

6. Research and Development Transfer 4 8 19

7. Commercial and Professional

Infrastructure

9 10 10

8. Access to Physical Infrastructure 6 10 10

9. Corruption 4 - 5

10. Government Programmes 2 1 4

11. Networking - 1 3

12. Bureaucracy - - 3

13. Lack of Competitiveness 2 1 1

3. Table 19.3 shows that perhaps the most enduring part of a nations life is its culture. This

is the one aspect that has received the same rating during 2001 as well as 2002.

Improvements are perceived in government programmes, financial support and physical

infrastructure. The change in perception on the physical infrastructure is encouraging

because this was the item on which India scored the lowest among 29 countries in 2001.

That distinction now (in 2002) goes to the enforcement of IPR law (one of the variables

in the IPR component, not the aggregate), where India has the lowest score among 37

countries. The perceived improvement in physical infrastructure may be attributed largely

to the improvements in the IT and telecom sector. It could also be that the countrysrelative positioning has improved with the entry of 8 new countries into the consortium.

The apparent deterioration in other areas has to be viewed with some caution, as the group

of experts last year was different from the current years group.

4. Table 19.4 makes a comparison of the number of times a particular theme is mentioned as

a problem area by the experts over the three years. A noticeable change this year is that

the experts have outgrown their obsession on finding fault with the government policies,

which was the most dominant theme during the previous two years. This year it is

preceded by other issues like education, culture, market openness and financial support

which, as we have seen above, have received the top priority mentions by the global

expert teams as well. It is probably a sign of our rising to the levels of global concerns,

and expressing our willingness to take charge of our affairs rather than blame the

government for everything. Perhaps it is the privatization initiatives of the governmentthat has brought in a sense of empowerment among the people, and a resultant feeling that

peoples destinies are in their own hands rather than in the hands of the government.

19.5.2 Assessment of the Level of Entrepreneurial Activity in India

As explained above, the level of entrepreneurial activity in India was assessed through an adult

population survey. The main features of the survey and its findings are briefly outlined below:


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1. The reader may refer back to our note under the Methodology section on the changes

effected this year in the sampling procedure. As part of the improvement efforts, the

sample size was increased from 2011 in the year 2001 to 3047 in 2002. Besides, the

respondents were chosen in such a way that all the metropolitan cities were included and

the major urban centers and rural areas were adequately represented. Males and females

were represented in the ratio of 52:48, and urban and rural areas in the ratio of 29:71.

Similarly there was adequate representation for the different age groups, income-levels

and educational attainments.

2. People in general have the entrepreneurial capacity with about 40% claiming to

have the skills and knowledge, 35% able to see opportunities in the immediate

future, and 27% expecting to do a start-up within the next 3 years. Fear of failure is

relatively low at 24%, and business failures are far fewer at 5% (see Table 19.5).

TABLE 19.5: Entrepreneurial Capacity of Respondents: Self-reports

Number (N = 3047) Percentage

1. Has knowledge and skills to do a start-up 1200 39.4

2. Perceives lots of good opportunities for start-upsin the next 6 months 1068 35.1

3. Fear of failure prevents start-up efforts 721 23.7

4. Expects to do a start-up 811 26.6

5. Has personally known an entrepreneur in the

past 2 years

619 20.3

6. Has shut down a business in the past one year 158 5.2

3. As explained above, there were four types of activities that were considered to be

entrepreneurial. The initial, unscreened percentages of these were as follows:

(a) Autonomous start-ups (23.3%),

(b) Owner-managed firms (20.4%),

(c) Start-up as part of ones job (3.9%) and

(d) Angel funding (2.2%).

The details are available in Table 19.6.

TABLE 19.6: The Four Types of Entrepreneurial Activities: Initial Responses of 3047

Respondents

Number (N = 3047) Percentage

1. Engaged in autonomous start-up activities 710 23.3

2. Own an manages a business 621 20.4

3. Engaged in start-up as part of ones job 120 3.9

4. Have done angel funding for others businesses

in the past three years.

68 2.2

Total (Respondents involved in one or more of the above

four)1363* 44.7*

*Note: This total is less than the total of the four individual items (1519:49.8%) as there are some

cases where the same respondent is being engaged in more than one activity.


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4. Based on procedures and weightage systems outlined above, the Total Entrepreneurial

Activity (TEA) index was computed for the country, which was 17.9 for the year 2002,

the second highest among 37 countries, (Thailand being the highest with 18.9%). The

figure is 6.3% higher than the 11.6% of 2001. The change may be partly due to a genuine

increase in entrepreneurial activity and partly due to the changes made in the sampling

procedure to ensure proper representation of all the regions and population segments of

the country. The hypothesis of increasing entrepreneurial activity is justified to some

extent because there was an increase of 2.58% between the years 2000 and 2001, when

there was no change in the sampling procedure.

5. In assessing the motives for entrepreneurship, a distinction was made between

opportunity-based and necessity-based entrepreneurship. The former was 12.7% for India

and the latter 5.2%. This is a marked deviation from 2001 when the necessity-based

entrepreneurship (7.5%) was found to be far higher than opportunity-based

entrepreneurship (3.7%). In fact, India was the highest last year on necessity-based

entrepreneurship among the 29 countries. This change may indicate a change in the level

of opportunities because of progressive liberalization; or once again, it may be at least

partly due to the changes in the sampling procedure.

6. The demographic profile of the entrepreneurial individual may be characterized as

follows:

Males are twice as likely as females to engage in entrepreneurial activities.

Contrary to the general expectation, this ratio is the same for India as well

as the developed west. Apparently there is no gender equality in

entrepreneurship even in countries which profess to have achieved all-

round equality of the genders!

There is no difference between the urban and rural population in terms of

their entrepreneurial activities, where the 30:70 ratio is maintained.

The age-group that is most involved in entrepreneurial activities is themiddle-adult group (35-44 years) constituting more than 40% of the

entrepreneurial individuals. For the developed countries, the most activeage-group is 25 34, suggesting that there is a more positive image for

entrepreneurs in those countries, which attracts young people to an

entrepreneurial career.

Income and education levels are inversely correlated with

entrepreneurship. These findings are in marked contrast with the pattern in

developed countries where education and income are directly (positively)

correlated with entrepreneurship. In India, on the other hand, the largest

proportion of entrepreneurs belong to the lower levels of income and

education, with only 3.3% of start-up entrepreneurs being post-graduates

and only 6.4% of them being in the high income group. The necessity-

based explanation for this also does not seem to hold good this year as the

larger proportion of Indian entrepreneurs this year are stimulated by

opportunities rather than necessity.

7. The profile of the ventures created in the country may be characterized as follows (see

Tables 19.7, 19.8, 19.9 & 19.10).

Most of the firms are single-owner businesses.


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Most businesses are single-person (zero-employee) operations

Very few firms expect any growth; the average number of employees

expected in five years by start-ups is 1.42 and by owner-managed firms is

3.21.

There are very few firms offering new products or using new technologies.

Most of them are doing the same business as competitors, operate in localmarkets and can be called me-too ventures.

The largest sector in which these firms operate is retail sales. Though other

areas (including manufacturing) are represented, their share is limited.

The main source of funds for the new firms is owners personal funds,

which is more than 53%.

Among the other sources of funding, a majore one is business angels.

They contribute about one-third of the total investments. However their

support is limited to family members and close relatives (see Table 19.11

for details).

TABLE 19.7: Characteristics of Autonomous Start-up Firms (N = Varies based on the numberresponding)

Number

(N=3047)

Percentage

Respondent active in start-up work during the past one year (N=710) 309 43.5

Respondent will own the new firm fully (N=710) 265 37.3

Respondent will own the new firm partly (N=710) 80 11.3

Average number of owners per firm 1.2 -

Have paid wages for 3 or more months (N=312) 13 4.2

Number of firms that have given profits or wages to the owners

(N=312)

4 1.3

Selling products/services that are new to customers (N=332) 82 24.7

Presence of competitors in the market (N=334) 322 96.4

Technology available one year ago (N=335) 294 87.8

Number of firms exporting (N=312) 3 0.96

Number of firms having at least one employee now (N=312) 11 3.5

Average number of employees per firm 0.08 -

Average number of employees in five years 1.42 -

Average investment required per firm 72,351

(Rupees)

-

Average amount invested by the entrepreneur (of requiredinvestment) 38,714(Rupees) 53.5

Opportunity-based start-ups (N=3047) 281 9.2

Necessity-based start-ups (N=3047) 145 4.7


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TABLE 19.8: Characteristics of Owner-Managed Firms (N = Varies 599 to 632)

Number(N=3047)

Percentage

Owns the firm fully (N = 617) 548 88.8

Owns the firm partly (N = 617) 51 8.3

No ownership in the firm (N = 617) 18 2.9

Average number of owners in the firms (N = 600) 1.12 -

Number of firms paying profits or wages to owners before the year

1999 (N = 595)

427 71.8

Selling products/services that are new to customers (N = 622) 147 21.6

Presence of competitors in the field (N = 622) 601 96.6

Technology available one year ago (N = 622) 590 94.9

Number of firms exporting (N = 616) 13 2.1Average number of employees per firm (N = 617) 1.37 -

Average number of employees in 5 years (N = 360) 3.21 -

Opportunity-based (N = 632) 420 66.5

Necessity-based firms (N = 632) 211 33.5

Family business (N = 632) 1 0.20

TABLE 19.9: Start-ups and the Nature of their Business

Number

(N=324)

Percentage

Retail sales 185 57.1Hotels, Bars, and Restaurants 44 13.6

Manufacturing 31 9.6

Agriculture, Forestry, Fisheries & Mining 13 4.0

Sale/Repair of Motor Cycles 12 3.7

Wholesale 11 3.4

Transportation, Communication and Utilities 10 3.1

Consumer services 8 2.5

Health, Education and Social services 6 1.9

Business services 4 1.2

Total 324 100

TABLE 19.10: Start-ups and the Nature of their Business

Number

(N=599)

Percentage

Retail sales 330 55.1

Manufacturing 89 14.9

Hotels, Bars, and Restaurants 58 9.7

Consumer services 23 3.8

Transportation, Communication and Utilities 21 3.5


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Wholesale 19 3.2

Agriculture, Forestry, Fisheries & Mining 16 2.7

Sale/Repair of Motor Cycles 16 2.6

Mining/Construction 12 2.0

Business services 10 1.7

Health, Education and Social services 3 0.5

Finance, Insurance, Real Estate 2 0.3

Total 599 100

TABLE 19.11: Characteristics of Business Angels (N=68)

Number

(N=68)

Percentage

Average amount of Angel Funding 26,493(Rupees)

-

Angel funding for close family members 27 39.7

Angel funding for relatives 22 32.4

Angel funding for friends/neighbours 15 22.1Angel funding for work colleagues 1 1.5

Angel funding for strangers 1 1.5

Not available 2 2.94

Total 599 100

C o n c l u s i o n

The Indian economy seems to be in a very vibrant phase, with an exceptionally high rate

(17.9%) of entrepreneurial activity, second only to Thailand (18.9%) among 37 countries that

participated in the GEM Project 2002. It may also be noted that unlike in the previous years,the opportunity-based entrepreneurship (12%) is substantially more than necessity-based

entrepreneurship (5%). The vibrancy of the Indian economy and the substantial improvement

in the opportunity-based entrepreneurship may be due to the irreversible process of economic

liberalization which has created several opportunities for private operators. This is also

substantiated by the fact that in the assessment of the entrepreneurial framework conditions

(EFCs) of the country, the experts have given a more favourable rating to those aspects where

more and more of private operators are allowed into. Obviously, a major precondition for

entrepreneurship to flourish is the empowerment of the private sector.

It may be noted that the Indian economy was behaving rather paradoxically in the sense that

it did not conform to the general pattern of relationships observed in the GEM global project.

In fact it defied the GEM conceptual model. With a mediocre rating on almost all the EFCs, ithas produced one of the highest levels of entrepreneurial activity. While the levels of

entrepreneurial activity were improving substantially over the years, the economic growth,

which should have been on the rise, has been declining (see Table 19.12). Apparently, the

entrepreneurial opportunities are generated not so much by economic growth but by the

progressive liberalization and opening up of the markets.


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TABLE 19.12: Growth of Entrepreneurial Activity in India Compared with GDP Growth in

the Previous Years

YEARS

TEA/GDP1999 2000 2001 2002

Percentage change

from previous years

Entrepreneurial activity in

India

- 8.97 11.55 17.88 2.58

(00-01)

6.33*

(01-02)

Percentage growth in GDP 6.71 5.36 4.08 - -1.35

(99-00)

-1.28

(00-01)

* Statistically significant @p 0.01

There could also be one other reason for the seemingly unrelated movement of

entrepreneurial activity and economic growth. It may be noted that one of the findings of thestudy was that a very large majority of the start-ups were imitative ventures in the low-tech

areas operated by less-educated, low-income groups, with very low potential for growth.

These are probably not the kind of ventures that can stimulate the economy. The findings thus

confirm the need and relevance of the innovative, growth-oriented entrepreneur (the

Schumpeterian type) for stimulating economic growth. Obviously there is no substitute for

entrepreneurial innovation!

sfs seminar-entrepreneurial framework conditions gem paper

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