Global Entrepreneurship Monitor (GEM) executive director Mike Herrington says he and his team are looking into the accuracy of various data in its annual global report.
This, after the GEM team discovered that several of the 54 countries surveyed in the year's report - released in January - had seen significant changes in the rate of entrepreneurship for adults that the report tracks.
In Malaysia the total early stage entrepreneurial activity (TEA) rate rose by a massive 16.9% from 2016 to 2017 – from 4.7% to 21.6%. The rate measures the number of adults between 18 and 64 involved in starting or running a business that is less than 3.5 years old.
This is even more strange when one considers that since 2009, the country's TEA rate has never exceeded 6.6%.
Much of the increase in the latest report has come from a supposed rise in nascent entrepreneurship - which the report defines as the percentage of the adults that have started a business that is less than four months old and that has not paid salaries or wages.
The rate in Malaysia stands at 15% - now the third highest of its kind among GEM countries surveyed in 2017/18. In 2016/17 it stood at a mere 2%.
“We are not sure what is happening in some of the countries,” Herrington (pictured above) admitted in a phone call with Small Business Insight earlier this week.
'Malaysia not concerned'
“Malaysia don’t seem to be concerned about it (the significant increase),” said Herrington. He said he had written to the teams of various countries including Malaysia, Mexico and Argentina, and was waiting for their urgent response.
Those countries that saw significant rises or falls in their TEA rate between 2016 and 2017 also include (see map):
He said with changes such as the move by more people to use cellphones over landlines, sampling is becoming a problem. He questioned whether enough youth or older persons were captured by the report, as it's common practice that many don't answer calls from unknown numbers, which survey companies might choose to use.
Curiously, this year’s report fails to point out this rather strange occurrence in the data. Herrington said the global report was written so quickly that an analysis could not be done on this finding.
While the strange data occurs just two years after an election in Argentina which saw left-wing Kirchnerists replaced and months ahead of a critical poll in Malaysia, Herrington said he was “100% certain” that there was no political interference in the findings.
Research community divided
The question over the findings comes amid growing divisions over entrepreneurship research – with the emergence several years ago of the Global Entrepreneurship Development Index (GEDI).
The index, first run in 2011, uses GEM data along with other indicators and is an attempt to create a policy tool by including a range of additional measures which influence entrepreneurship in a country.
The index was conceived by George Mason University’s Zoltan J. Acs and László Szerb, both formerly members of GEM Hungary.
The publication of the index has caused confusion in the research community, over the entrepreneurial rate and measure of support for entrepreneurs in each country.
For example, while GEM ranks Ecuador as the most entrepreneurial among 54 countries surveyed in 2017/18, GEDI in 2018 ranks the US as the country with the best entrepreneurial support.
In the latest GEDI, Acs and co-authors Ainsley Lloyd and Szerb note that: "Good policy can only be generated through focusing the discussion on innovative, growth-oriented entrepreneurship, not the self-employment captured by GEM’s TEA rate".
The team goes onto say that GEDI's definition of entrepreneurship is driven not by necessity entrepreneurship but by opportunity.
Says GEDI in the same report: "While many think of the output of ecosystems as (producing) more start-ups, like GEM, this is wrong and misleading. The dual service created by entrepreneurial ecosystems is (1) resource allocation towards productive uses and (2) the innovative, high-growth ventures that drive this process."
'Can't rely on GEDI index'
GEM no longer includes Hungary among the countries it covers. Herrington said GEM had asked them a few years ago to leave as (Acs) "had tried to use GEM data for GEDI”.
"A number of organisations say they don't want to use a composite index and can't rely on GEDI's (index)," he said,
However he admitted that GEM's new Entrepreneurial spirit measure is the first attempt to form a composite measure. The measure is based on a combination of a country's degree of entrepreneurial awareness, opportunity perception, and entrepreneurial self-efficacy.
Saudi Arabia is ranked number one on the index (ranked as only the 25th most entrepreneurial country by GEM). When Small Business Insight pointed out that this was rather strange, Herrington defended the country's place at the head of the index.
Commenting on the strange GEM data, Acs said he had “no idea what has caused this strange development in the GEM data”. “One reason can be a change in vendor that does things differently but I have no real idea,” he said.
The cat fight between these two groups means researchers and policymakers will be none the wiser on what is really happening in their country. The strange data at GEM now only adds to the confusion. In the end entrepreneurs could lose out.
Correction: The initial version of this post had it that the GEM team had approached the University of Michigan to get assistance in assessing the report's sampling methodology - when in fact GEM still intends to do so. We regret the error.
Timm is a South African who writes on small business. Follow Small Business Insight on Twitter at @Smallbinsight.Herrington said he and his team are looking at the report's sampling methodology and that they would be approaching the University of Michigan to get assistance in assessing this, as this may have affected the results in some of these countries.
Last week saw thousands of people take part in events around the world during Global Entrepreneurship Week (GEW). But a growing positivity towards entrepreneurship doesn't necessarily translate into more start-ups.
Since it started in 2008 GEW has grown to become one of the largest entrepreneurship events with its initiators, the Kauffman Foundation, predicting about 10 million people from 160 countries would take part in this year’s event – which ran from November 16 to 22.
The event aims to promote entrepreneurship, and in so doing make it a more attractive career choice.
The status given to entrepreneurs by the public has also increased, while media attention has improved slightly. This would be encouraging if it had any effect on increasing the number of adults that start and run new businesses. But it seems that unlike in a some countries it has had no real effect at all (see Graph 2).
Is there a trend?
Yet in some countries (like Russia and Brazil) there appears to be a strong link between growing sentiment that entrepreneurship is a good career choice and a rising rate at which people are starting new businesses.
The link also appears to be evident in those countries (like Colombia and India) which have seen a trend of declining numbers of adults opening new businesses, where increasingly fewer of the population view entrepreneurship as a good career choice.
Chile on the other hand presents an odd case.
There in the last six years the rate of Chileans becoming involved in starting a business has almost doubled (from 14.1% of adults in 2008 to 26.8% in 2014). Yet year on year steadily fewer Chileans believe being an entrepreneur is such a good career choice (see Graph 3) - 69% in 2014, versus 80% in 2008. Why is that?
The answer may lie in the country's significantly high business failure rate (Gem data shows the country's business discontinuation rose from an already high 5.8% to 8.3% over the same period). It could be that more are becoming despondent in their beliefs that entrepreneurship is a viable option.
So something else must also be affecting the public’s view of whether entrepreneurship is a good career choice or not.
It seems at least in Chile, South Africa and Malaysia’s that whether people view entrepreneurship has something cool or not, has little effect on getting more people to start their own business.
For South Africa in particular, with its high unemployment rate and low rate of entrepreneurship of 6.97% (see this earlier post) this is very concerning. All the media attention, hype and talk won’t help create more entrepreneurs for the country.
South Africans are already very positive about entrepreneurship. But this alone isn't enough to start their own business. Could it be that better training, finance and support is needed to equip those to start a business? Less red-tape? A more can-do attitude?
These are big questions that need as much action as thought to make things work.
Timm is a South African who writes on small business. Follow Small Business Insight on Twitter at @Smallbinsight.
South Africa is increasingly becoming a less friendly place to do business in when compared with its emerging market peers.
The World Bank's Doing Business 2016 report, released this week, revealed that the country fell four places to 73 in the rankings on ease of doing business.
For probably the first time, it is now easier to run a business in Botswana than in South Africa (ranked 72nd). The island of Mauritius (32nd) tops the continent.
This is worrying, more so when coupled with the country's deteriorating entrepreneurship rate (see this earlier post).
In contrast it's now easier to run a business in Russia than in South Africa. Eight years ago it was nearly as hard to run a business in Russia as in legendary red tape champions India and Brazil.
The World Bank said Russia rose 11 places because of reforms addressing the registration of property, power supply reliability, and the transparency of electricity tariffs, among other measures (The big jump in ratings raised Russia from 62nd place worldwide to 51st place - just shy of President Vladimir Putin's goal of raising Russia ranking to 50 by 2015.)
On the other hand Chile has made significant progress – slashing the time it takes to start a business from 40 days to 5.5 days over the same period. Colombia has cut it from 40 days to 11 days, Georgia from 11 to 2 days, Russia from 29 days to 11 days and Malaysia from 31 days to 7 days.
The only country to perform worse in this regard is Brazil – which has dropped from 122 to 174 (after hitting 90 in 2012). Chile has also slid back. After climbing from 69 in 2008 to 22 in 2014, it has fallen to 62. The best performer continues to be Georgia, ranked sixth.
In contrast Brazil continues to be an outlier, with issues of tax consuming a massive 2,600 hours a year for mid-size businesses.
How fair are they?
But the World Bank has faced a barrage of criticism of recent over the rankings.
The Financial Times noted this week that in many ways they favour authoritarian regimes which have the capacity to pass regulations quickly through rubber-stamp parliaments over democratically elected ones. In May, for example, Putin signed a decree to get the country to number 20 on the rankings.
Yet none the less the South African government seems to be taking action - at least in response to slowdown of growth (the economy is set to grow at just 1.5% this year).
The Presidency is set to establish an investment task team, as part of a nine-point plan mooted by South African president Jacob Zuma earlier this year to tackle low growth. It will look at how to reduce red tape and encourage more investment.
In addition, the Department of Trade and Industry has begun the process of setting up an investment clearing house which will take a more focused approach to attracting and retaining investors in the country.
A more focused approach to trimming red tape and enabling the private sector is what's needed. But will it happen?
Timm is a South African who writes on small business. He is currently based in Cape Town, South Africa. Follow Small Business Insight on Twitter at @Smallbinsight and on Facebook.
The percentage of adult South Africans involved in starting a business has plunged by 34%, a new report shows.
The Global Entrepreneur Monitor (Gem) global report for 2014 reveals that the percentage of adults involved in a business less than three-and-a-half years old (the TEA rate) fell to 6.97% last year from a 13-year high of 10.6% in 2013.
This, while the percentage of South African adults running established businesses (those of older than three and a half years) has also slipped - from 2.9% to 2.68%.
The 2014 report surveyed over 206,000 individuals and 3,936 national experts on entrepreneurship across 73 economies.
South Africa is not alone in its decline. The rate of adults starting new businesses also fell dramatically in India (along with its established business rate) and Colombia, and slipped slightly in Russia and Malaysia.
South Africa continues to perform below similar, efficiency driven economies (see graph below), where the average early-stage entrepreneurial activity (TEA) rate rate is 14% of adults, while that of established businesses is 4.5%.
Below par performance
“When one looks at the TEA rates of different countries and compares these to the GDP per capita in the country, a “line of best fit” shows that South Africa should have a TEA rate in the region of 14%, which, if achieved, would go a long way towards reducing unemployment and alleviating the poverty experienced by much of its population,” says Gem executive director Mike Herrington, (pictured right) in the report.
Herrington adds that it’s difficult to show where Gem has influenced policymaking in South Africa except that over the years Gem results are being quoted by businesses and government departments to a greater extent than when Gem first started tracking South Africa in 2001.
High failure rate
While there is evidence that South African firms are failing less than in previous years (with the discontinuance rate fell falling from 4.9% to 3.89%) an analysis by Small Business Insight of Gem data for 2014 shows that South Africa still has one of the high failure rates (those running established companies as a ratio of the sum of both established and early-stage entrepreneurial activity).
Of a group of eight emerging economies (Brazil, Chile, Colombia, Malaysia, India, Russia, Georgia and South Africa) South Africa, with the exception of Chile and Colombia, has the highest business failure rate.
But what makes South Africa's case concerning is the country's low number of adults involved in start-up activity (see graph) and in running established firms.
Of the group of eight, Malaysia is ranked as having the most favourable entrepreneurial eco-system – with good access to finance and good policies and government programmes, among other things. Last year it eco-system was judged as more favourable than in 2013.
The biggest gain was made by India, possibly driven by prime minister Narendra Modi and his mooted reforms. Local experts there rated the country more favourably than in 2013, particularly in government policies as well as programmes and finance and cultural norms.
The rating of South Africa’s entrepreneurial eco-system slipped (as did those of Colombia and Chile). The African country is weighed down by poor ratings on government programmes and primary education.
Brazil continues to trail at the bottom of the rankings, bogged down by its low rating by local experts on regulations and poor primary education.
Four types of nations
Of the eight emerging economies analysed by Small Business Insight, four types of countries emerge:
Timm is the author of Trade and Industrial Policy Strategies (TIPS) 2012 report ‘How the state and private sector can partner to boost support to SMEs: Lessons from Chile & Malaysia. Click here to view the report. Click here to sign up to his monthly newsletter. Follow him on Twitter at @Smallbinsight and on Facebook.
Stephen Timm is a