Exceptional Extras, March 2014

G20 Entrepreneurship Barometer 2013

Engines of growth

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Entrepreneurs play a critical role in economic recovery – so how do the world’s leading economies fare when it comes to cultivating an environment where they can flourish?

It may be early yet, but there are increasing signs that a fledgling recovery is doing its best to take hold. But if this recovery is to be sustainable, it will have to rely on a multitude of macroeconomic and microeconomic factors working in a coordinated and concerted way.

The good news is that entrepreneurs and fast-growth companies increasingly lie at the heart of this recovery, fueling growth through rapid job creation and capital expansion. Recognizing the overwhelmingly positive impact entrepreneurs and their fast-growth enterprises can have on an economy, the EY G20 Entrepreneurship Barometer 2013 was devised to help leading G20 countries benchmark their progress and performance with cultivating entrepreneurship.

“The need to act is clear. Entrepreneurs have the power to create jobs and drive growth — but first we need to give them the tools and environment that will enable them to succeed.”

Maria Pinelli, Global Vice Chair, Growth Markets, EY

The publication also lists practical steps in areas where the G20 countries need to take urgent action to improve the business environment for these innovators, encouraging their establishment and growth. Combining the results of a survey of more than 1,500 entrepreneurs with qualitative and quantitative data based on economic and business conditions across the G20, the report identifies the countries that lead the way in facilitating business start-ups and their growth.

Each country is measured and subsequently ranked against five fundamental criteria: access to funding, entrepreneurship culture, tax and regulation, education and training, and coordinated support.

Access to funding

Unsurprisingly, access to funding is where entrepreneurs feel the greatest improvements are needed. Seven out of 10 entrepreneurs surveyed indicated they find it difficult to obtain funding support, with half saying improved access to funding would be the most effective way of accelerating entrepreneurship.

Improving the situation is not straightforward, but with the right policies in place, governments can enable a deeper and more diverse mix of funding options to support every stage of growth. For example, allowing investors to accept and pool donations from multiple investors is one possible solution.

Entrepreneurship culture

The importance placed on the role of entrepreneurship in a country’s culture also proves to be a pressing issue. Countries that champion risk-taking and have an abundance of inspirational role models tend to encourage more individuals to start new ventures, improving the pace of new business growth in that country.

Indeed, 84% of G20 entrepreneurs believe raising awareness of entrepreneurs’ roles as job creators would improve attitudes toward their work — making it easier to establish and grow their businesses.

“More can be done, not least given the potential for governments to learn from each other, exchange best practices and avoid any pitfalls or unintended consequences that others have already encountered.”

Uschi Schreiber, Global Markets Leader and Global Government and Public Sector Leader, EY

In reality, only 15% reported their own country had a culture that fully supported their efforts. Encouraging a tolerant attitude toward business failure is also necessary to help create realistic, entrepreneur-friendly conditions and expectations in a country’s culture.

Countries such as the US, which scores highly in this area, do not excessively punish honest businesses that fail and actively encourage private sector lenders and investors to take a similar approach. All G20 countries can make a more concerted effort to acknowledge and leverage the emerging pool of entrepreneurial talent among women, immigrants and young people.

These demographic groups require targeted strategies to encourage business start-ups and fast growth. This strategy can also serve to broaden the entrepreneurial base in individual countries.

Tax and regulation

Government support of entrepreneurial ecosystems doesn’t need to be based solely on leniency. The analysis of tax and regulation across the G20 countries revealed low corporate income tax rates, business-friendly regulations, and the availability of good information and resources.

“Companies have to pay a heavy tax burden. They pay tax at an aggressive rate in proportion to number of employees, regardless of revenue or profit. It’s a serious disincentive to entrepreneurs.”

Stefano Neri, Chairman and CEO, TerniEnergia SpA, Italy, on the tax burden in Italy.

These are key attributes that have put Saudi Arabia on top of the table for tax and regulation. These Keynesian qualities resonate with the G20’s entrepreneurs, 84% of whom want tax systems to be simplified.

Education and training

But even before new businesses reach the point of filing a tax return, a lot can be done to cultivate the nation’s entrepreneurial culture through education and training. For instance, more than four out of five respondents believe entrepreneurial skills can, and should, be taught in schools and colleges.

In more mature economies, such as Australia, South Korea and France, education and training in start-ups and innovation are most prominent thanks to a legacy of public spending and public interest allowing entrepreneurs to become true drivers of growth.

Meanwhile, large corporations, philanthropists and existing entrepreneurs have shown they can make a significant contribution in time and money to support educational courses, mentoring and peer-group clubs to raise the prominence of entrepreneurship in the general culture.

This can make a considerable difference to the success — and pace of success — of an entrepreneurial enterprise.

Coordinated support

Finally, the report shows that integrated and coordinated support through better orchestrated links between the public, private and voluntary sectors are more effective than isolated actions. In this respect, the rapid-growth markets of Russia, Mexico, Brazil and Indonesia are leading the G20 countries in providing networks, mentors and incubators — programs designed to support the successful development of start-up businesses.

Visit ey.com/g20ey to read more in-depth analysis of individual G20 countries.

And the implications of these efforts can be quick. In Russia, for example, one in four entrepreneurs say access to incubators has improved over the past three years, with the country now having more than 1,100 registered incubators and technology parks and a burgeoning entrepreneurial culture as a result.

None of these factors alone can create the fertile ground needed to nurture thriving entrepreneurs, but implemented together, in a coordinated way, the barometer shows a more congenial environment for growth can be achieved.