{"id":139,"date":"2015-07-29T23:05:18","date_gmt":"2015-07-29T23:05:18","guid":{"rendered":"https:\/\/courses.candelalearning.com\/intlbusx1xmaster\/?post_type=chapter&p=139"},"modified":"2017-01-09T19:16:25","modified_gmt":"2017-01-09T19:16:25","slug":"business-entrepreneurship-across-borders","status":"publish","type":"chapter","link":"https:\/\/courses.lumenlearning.com\/cerritos-internationalbusiness\/chapter\/business-entrepreneurship-across-borders\/","title":{"raw":"Reading: Business Entrepreneurship across Borders","rendered":"Reading: Business Entrepreneurship across Borders"},"content":{"raw":"
\r\n
\r\n

Learning Objectives<\/h3>\r\n
    \r\n\t
  1. Understand why entrepreneurship can vary across borders.<\/li>\r\n\t
  2. Recognize how entrepreneurship differs from country to country.<\/li>\r\n\t
  3. Access and utilize the Doing Business<\/em> and Global Entrepreneurship Monitor resources.<\/li>\r\n<\/ol>\r\n<\/div>\r\n
    \r\n

    How the Ease of Doing Business Affects Entrepreneurship across Countries<\/h2>\r\nThere are a number of factors that explain why the level of business entrepreneurship varies so much across countries. In 1776, Adam Smith argued in The Wealth of Nations<\/em> that the free-enterprise economic system, regardless of whether it\u2019s in the United States, Russia, or anywhere else in the world, encourages entrepreneurship because it permits individuals freedom to create and produce.[footnote]Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations<\/em> (London: W. Strahan and T. Cadell, 1776).[\/footnote] Recent versions have been edited by scholars and economists.<\/span> Such a system makes it easier for entrepreneurs to acquire opportunity. Smith was focused mostly on for-profit businesses. However, constraints on the ownership of property might not necessarily constrain other types of entrepreneurship, such as social entrepreneurship.\r\n\r\nBusiness entrepreneurship and social entrepreneurship are clearly related. Researchers have observed that in countries where it\u2019s relatively easy to start a business\u2014that is, to engage in business entrepreneurship\u2014then it\u2019s also comparatively easier to be a social entrepreneur as well. One useful information resource in this regard is the World Bank\u2019s annual rankings of \u201cdoing business\u201d\u2014that is, the Doing Business<\/em> report provides a quantitative measure of all the regulations associated with starting a business, such as hiring employees, paying taxes, enforcing contracts, getting construction permits, obtaining credit, registering property and trading across borders.[footnote]Doing Business website, accessed July 2, 2010, http:\/\/www.doingbusiness.org<\/a>.[\/footnote]<\/span>\r\n\r\nDoing Business<\/em> is based on the concept that economic activity requires good rules. For businesses to operate effectively, they need to know that contracts are binding, that their property and intellectual property rights are protected, and that there is a fair system for handling disputes. The rules need to be clear yet simple to follow so that things like permits can be obtained efficiently.\r\n\r\nThe World Bank\u2019s Doing Business<\/em> Project looks at laws and regulations, but it also examines time and motion indicators. Time and motion indicators measure how long it takes to complete a regulatory goal (e.g., getting a permit to operate a business).\r\n\r\nThanks to ten years of Doing Business<\/em> data, scholars have found that lower costs of entry encourage entrepreneurship, enhance firm productivity, and reduce corruption.[footnote]For example, Levon Barseghyan, \u201cEntry Costs and Cross-Country Productivity and Output,\u201d Journal of Economic Growth<\/em> 12, no. 2 (2008): 145\u201367; and Leora F. Klapper, Anat Lewin, and Juan Manuel Quesada Delgado, \u201cThe Impact of the Business Environment on the Business Creation Process,\u201d World Bank Policy Research Working Paper No. 4937, May 1, 2009.[\/footnote]<\/span> Simpler start-up regulations also translate into greater employment opportunities.[footnote]For example, Roberto Chang, Linda Kaltani, and Norman V. Loayza, \u201cOpenness Can Be Good for Growth: The Role of Policy Complementarities,\u201d Journal of Development Economics<\/em> 90, no. 1 (September 2009): 33\u201349; Elhanan Helpman, Marc Melitz, and Yona Rubinstein, \u201cEstimating Trade Flows: Trading Partners and Trading Volumes,\u201d The Quarterly Journal of Economics<\/em>, 123, no. 2 (May 2008): 441\u201387.[\/footnote]<\/span>\r\n\r\nBeyond describing local business practices, one of the key objectives of the Doing Business<\/em> Project is to make it easier for entrepreneurship to flourish around the world. Considerable progress has been made each year in this regard, with 2010 being noted as a record year in regard to business-regulation reform. The countries with at least one positive reform are shown in the following figure.\r\n
    \r\n\r\n[caption id=\"\" align=\"aligncenter\" width=\"500\"]\"map<\/a> Source: \u201cPercentage of Countries with at Least One Positive Reform,\u201d Doing Business, accessed June 3, 2011, http:\/\/www.doingbusiness.org\/reforms\/events\/~\/media\/FPDKM\/Doing%20Business\/Documents\/Reforms\/Events\/DB10-Presentation-Arab-World.pdf<\/a>.[\/caption]\r\n\r\n<\/div>\r\nAmong the most populated countries, the World Bank suggests it\u2019s easiest to do business in the United States, the United Kingdom, Canada, Australia, and Thailand; the most difficult large countries are C\u00f4te d\u2019Ivoire, Angola, Cameroon, Venezuela, and the Republic of the Congo. Among the less populated countries, the easiest-to-do-business rankings go to Iceland, Mauritius, Bahrain, Estonia, and Lithuania; the most difficult are Mauritania, Equatorial Guinea, S\u00e3o Tom\u00e9 and Pr\u00edncipe, and Guinea-Bissau. You can experiment with sorting the rankings yourself by region, income, and population at http:\/\/www.doingbusiness.org\/economyrankings<\/a>.\r\n\r\n<\/div>\r\n
    \r\n

    Differing Attitudes about Entrepreneurship around the World<\/h2>\r\nEntrepreneurship takes place depending on the economic and political climate, as summarized in the World Bank\u2019s Doing Business<\/em> surveys. However, culture also plays an important role\u2014as well as the apparent interest among a nation\u2019s people in becoming entrepreneurs. This interest is, of course, partly related to the ease of doing business, but the cultural facet is somewhat deeper.\r\n\r\nTurkey, for instance, seems a ripe location for entrepreneurship because the country has relatively stable political and economic conditions. Turkey also has a variety of industries that are performing well in the strong domestic market. Third, Turkey has enough consumers who are early adopters, meaning that they will buy technologies ahead of the curve. Again, this attitude would seem to support entrepreneurism. Yet, as Jonathan Ortmans reports in his Policy Forum Blog<\/em>, currently only 6 percent workers are entrepreneurs\u2014a surprisingly low rate given the country\u2019s favorable conditions and high level of development.[footnote]Jonathan Ortmans, \u201cEntrepreneurship in Turkey,\u201d Policy Forum Blog<\/em>, April 5, 2010, accessed July 2, 2010, http:\/\/www.entrepreneurship.org\/en\/Blogs\/Policy-Forum-Blog\/2010\/April\/Entrepreneurship-in-Turkey.aspx<\/a>.[\/footnote]<\/span> The answer to the mystery can be found in the World Bank\u2019s most recent report, which shows Turkey to be among the most difficult countries in which to do business. The Kauffman Foundation, on the basis of its own assessment, likewise identified many hurdles to entrepreneurship in Turkey, such as limited access to capital and a large, ponderous bureaucracy that has a tangle of regulations that are often inconsistently applied and interpreted. Despite all the regulations, intellectual property rights are poorly enforced and big established businesses strong-arm smaller suppliers.[footnote]Jonathan Ortmans, \u201cEntrepreneurship in Turkey,\u201d Policy Forum Blog<\/em>, April 5, 2010, accessed July 2, 2010, http:\/\/www.entrepreneurship.org\/en\/Blogs\/Policy-Forum-Blog\/2010\/April\/Entrepreneurship-in-Turkey.aspx<\/a>.[\/footnote]<\/span>\r\n\r\nHowever, the Kauffman study also suggests that perhaps the most difficult problem is Turkey\u2019s culture regarding entrepreneurship and entrepreneurs. Although entrepreneurs \u201cby necessity\u201d are generally respected for their work ethic, entrepreneurs \u201cby choice\u201d (i.e., entrepreneurs who could be pursuing other employment) are often discouraged by their families and urged not to become entrepreneurs. The entrepreneurs who succeed are considered \u201clucky\u201d rather than having earned their position through hard work and skill. In addition, the business and social culture does not have a concept of \u201cwin-win,\u201d which results in larger businesses simply muscling in on smaller ones rather than encouraging their growth or rewarding them through acquisition that would provide entrepreneurs with a profitable exit. The Kauffman report concludes that Turkey is in as much need of cultural capital as financial capital.\r\n
    \r\n

    Did You Know?<\/h3>\r\nThe late entrepreneur and philanthropist Ewing Marion Kauffman established the Ewing Marion Kauffman Foundation in the mid-1960s. Based in Kansas City, Missouri, the Kauffman Foundation is among the thirty largest foundations in the United States, with an asset base of approximately $2 billion.[footnote]\u201cFoundation Overview,\u201d Ewing Marion Kauffman Foundation, accessed July 2, 2010, http:\/\/www.kauffman.org\/about-foundation\/foundation-overview.aspx<\/a>.[\/footnote]<\/span> Here\u2019s how Kauffman Foundation CEO Carl Schram describes the vision of the foundation and its activities:\r\n
    Our vision is to foster \u201ca society of economically independent individuals who are engaged citizens, contributing to the improvement of their communities.\u201d In service of this vision and in keeping with our founder\u2019s wishes, we focus our grant making and operations on two areas: advancing entrepreneurship and improving the education of children and youth. We carry out our mission through four programmatic areas: Entrepreneurship, Advancing Innovation, Education, and Research and Policy.\r\n\r\nThough all major foundation donors were entrepreneurs, Ewing Kauffman was the first such donor to direct his foundation to support entrepreneurship, recognizing that his path to success could and should be achieved by many more people. Today, the Kauffman Foundation is the largest American foundation to focus on entrepreneurship and has more than fifteen years of in-depth experience in the field. Leaders from around the world look to us for entrepreneurship expertise and guidance to help grow their economies and expand human welfare. Our Entrepreneurship team works to catalyze an entrepreneurial society in which job creation, innovation, and the economy flourish. We work with leading educators, researchers, and other partners to further understanding of the powerful economic impact of entrepreneurship, to train the nation\u2019s next generation of entrepreneurial leaders, to develop and disseminate proven programs that enhance entrepreneurial skills and abilities, and to improve the environment in which entrepreneurs start and grow businesses. In late 2008, the Foundation embarked on a long-term, multimillion-dollar initiative known as Kauffman Laboratories for Enterprise Creation, which, through a set of innovative programs, is seeking to accelerate the number and success of high-growth, scale firms.\r\n\r\nIn the area of Advancing Innovation, our research suggests that many innovations residing in universities are slow getting to market, and that many will never reach the market. As we look to improve this complex task, we work to research the reasons why the system is not more productive, explore ways to partner with universities, philanthropists, and industry to ensure greater output, and ultimately foster higher levels of innovative entrepreneurship through the commercialization of university-based technologies.\r\n\r\nWe believe, as did Mr. Kauffman, that investments in education should lead students on a path to self-sufficiency, preparing them to hold good-paying jobs, raise their families, and become productive citizens. Toward that end, the Foundation\u2019s Education team focuses on providing high-quality educational opportunities that prepare urban students for success in college and life beyond; and, advancing student achievement in science, technology, engineering and math.\r\n\r\nThe Kauffman Foundation has an extensive Research and Policy program that is ultimately aimed at helping us develop effective programs and inform policy that will best advance entrepreneurship and education. To do so, our researchers must determine what we know, commit to finding the answers to what we don\u2019t, and then apply that knowledge to how we operate as a Foundation. Kauffman partners with top-tier scholars and is the nation\u2019s largest private funder of economic research focused on growth. Our research is contributing to a broader and more in-depth understanding of what drives innovation and economic growth in an entrepreneurial world.[footnote]\u201cFoundation Overview,\u201d Ewing Marion Kauffman Foundation, accessed July 2, 2010, http:\/\/www.kauffman.org\/about-foundation\/foundation-overview.aspx<\/a>.[\/footnote]<\/span><\/blockquote>\r\n(Click the following link to view Schram\u2019s discussion with Charlie Rose about entrepreneurship and education: http:\/\/www.charlierose.com\/view\/interview\/11026<\/a>.)\r\n\r\n<\/div>\r\nIs there a way for you to gain insights into a country\u2019s entrepreneurial culture and therefore better explain why entrepreneurship varies so much? While there\u2019s no perfect answer to this\u2014just as it\u2019s impossible to provide you with a survey telling you whether you will be a success or a failure as an entrepreneur\u2014you may find it of interest to compare the motivations for engaging in entrepreneurship across countries. The Global Entrepreneurship Monitor (GEM)<\/span><\/span> is a research program begun in 1999 by London Business School and Babson College. GEM does an annual standardized assessment of the national level of entrepreneurial activity in fifty-six countries. The GEM reports are available at http:\/\/www.gemconsortium.org<\/a>.\r\n\r\nGEM shows that there are systematic differences between countries in regard to national characteristics that influence entrepreneurial activity. GEM also shows that entrepreneurial countries experience higher economic growth. On the basis of another set of surveys and the corresponding index prepared annually by the World Economic Forum (WEF),[footnote]World Economic Forum website, accessed July 2, 2010, http:\/\/www.weforum.org\/en\/index.htm<\/a>.[\/footnote]<\/span> countries are broken out in groups, including factor-driven economies (e.g., Angola, Bolivia, Bosnia and Herzegovina, Colombia, Ecuador, Egypt, India, and Iran), efficiency-driven economies (e.g., Argentina, Brazil, Chile, Croatia, Dominican Republic, Hungary, Jamaica, Latvia, Macedonia, Mexico, Peru, Romania, Russia, Serbia, South Africa, Turkey, and Uruguay), and innovation-driven economies (e.g., Belgium, Denmark, Finland, France, Germany, Greece, Iceland, Ireland, Israel, Italy, Japan, the Netherlands, Norway, Slovenia, South Korea, Spain, the United Kingdom, and the United States). Somewhat like the Doing Business<\/em> survey, the WEF ranks national competitiveness in the form of a Global Competitiveness Index (GCI)<\/span><\/span>. The GCI defines competitiveness as \u201cthe set of institutions, policies, and factors that determine the level of productivity of a country.\u201d The GCI ranks nations on a weighted index of twelve assessed pillars: (1) institutions, (2) infrastructure, (3) macroeconomic stability, (4) health and primary education, (5) higher education and training, (6) goods-market efficiency, (7) labor-market efficiency, (8) financial-market sophistication, (9) technological readiness, (10) market size, (11) business sophistication, and (12) innovation.<\/span>[footnote]\u201cThe Global Competitiveness Report 2008-2009: US, 2008,\u201d World Economic Forum, accessed January 18, 2011, https:\/\/members.weforum.org\/pdf\/gcr08\/United%20States.pdf<\/a>.<\/span> Current and past reports are available at http:\/\/www.weforum.org\/reports<\/a>.[\/footnote]\r\n
    \"image\"<\/a><\/div>\r\nFactor-driven economies<\/span><\/span> are economies that are dependent on natural resources and unskilled labor. For example, Chad is the lowest-ranked country in the GCI, and its economy is dependent on oil reserves. Because its economy is so tied to a commodity, Chad is very sensitive to world economic cycles, commodity prices, and fluctuations in exchange rates. The pillars associated with factor-driven economies are institutions, infrastructure, macroeconomic stability, and health and primary education.\r\n\r\nEfficiency-driven economies<\/span><\/span>, in contrast, are found in countries that have well-established higher education and training, efficient goods and labor markets, sophisticated financial markets, a large domestic or foreign market, and the capacity to harness existing technologies, which is also known as technological readiness. The economies compete on production and product quality, as Brazil does. Brazil has a per capita gross domestic product (GDP) of about $7,000.\r\n\r\nInnovation-driven economies<\/span><\/span>, finally, are economies that compete on business sophistication and innovation.[footnote]Casey Coleman, \u201cAssessing National Innovation and Competitiveness Benchmarks,\u201d U.S. General Services Administration<\/em>, March 7, 2009, accessed June 10, 2010, http:\/\/innovation.gsa.gov\/blogs\/OCIO.nsf\/dx\/Assessing-National-Innovation-and-Competitiveness-Benchmarks<\/a>.[\/footnote]<\/span> The United States, with a per capita GDP of about $46,000, ranks first overall in the GCI due to its mature financial markets, business laws, large domestic size, and flourishing innovation.\r\n\r\nUsing the criteria for factor-driven, efficiency-driven, and innovation-driven economies and the most recent surveys results, the following figure summarizes the range of activity across a select group of countries.\r\n
    \r\n\r\n\"image\"<\/a>\r\n
    \r\n\r\nAdapted from Global Entrepreneurship Monitor, 2008 Report, U.S.A.\r\n\r\n<\/div>\r\n<\/div>\r\n
    \r\n

    Key Takeaways<\/h3>\r\n