Entrepreneurship is not synonymous with innovation after all

The finding comes from the latest Global Entrepreneurship Monitor (GEM), an eight-year old international programme that aims to describe and analyse entrepreneurial processes across the member countries. Three main objectives are to measure differences in the level of entrepreneurial activity between each other, uncover factors driving entrepreneurial activity and identify policies to enhance it.

The research follows would-be entrepreneurs who are making the first moves to set up a business, and those active in established start-ups.

According to GEM, its research indicates there is a direct relationship between a country’s level of economic development and its level and type of entrepreneurial activity.

The authors, Niels Bosma and Rebecca Harding say early stage entrepreneurial activity is generally higher in those countries with lower levels of gross domestic product (GDP) and relatively low in higher income countries, especially core countries of the EU and Japan.

The explanation is that these more prosperous economies have many large companies that not only provide a broad range of goods and services, but are also a source of secure, well-paid employment.

However, as incomes increase further, the role of the entrepreneur expands. More individuals have the resources to go into business for themselves, and individuals have more disposable income to buy their goods. As a result, countries with the highest levels of GDP show increasing early-stage entrepreneurial activity.

Of the 42 countries GEM studies, early stage entrepreneurial activity is highest in Peru, at 40.2 percent, and lowest in Belgium at 2.7 percent.

Countries with higher levels of early stage entrepreneurial activity tend also to have higher rates of established business ownership.

This begs the question of motivation: Is entrepreneurial activity in lower income countries driven by business opportunity, or the fact that it is hard to find other employment?

Most entrepreneurs claim they are responding to an opportunity, but it turns out that ‘necessity’ entrepreneurship is more common in middle income countries (GDP below $20,000 per head), such as China, India, Russia, South Africa, Croatia, Hungary and Latvia.

Meanwhile the highest percentage of opportunity driven entrepreneurs are found in Denmark, Norway and the Netherlands, where over 90 percent of entrepreneurs are motivated by business opportunities.

But what does the research uncover about the relationship between entrepreneurship and innovation? It transpires that the vast majority of entrepreneurship under study does not involve bringing new technologies to market. More than 60 percent of early stage entrepreneurs say their products or services contain no new technology, and the figure rises to 80 percent for established entrepreneurial businesses.

By far the largest share of entrepreneurs are active in the consumer sector, in shops, restaurants, bars, or in construction, manufacturing or distribution.

As the authors conclude, “entrepreneurship comes in many forms. Therefore, when it comes to entrepreneurial policy, one size does not fit all.”