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My colleague here at Belmont University, Jose Gonzalez, has been working with a group of students to assist honey farmers in Guatemala.

They all spent time in Guatemala over part of the Christmas break and are now back working on plans to help these farmers.  Toward that end they have entered their project in Dell's Social Innovation Competition.

Here is our students' entry into this competition to set up an entity to support these farmers and to expand a microloan fund:

Our plan is to support the creation of an independent venture that manages the production and commercialization of Fair Trade honey for small-scale farmers in Guatemala.

Background: Located in the mountainous department of Quiche in northern Guatemala, the town of Chajul suffered some of the most brutal violence of Guatemala's thirty-year Civil War. Its predominantly indigenous community continues to be one of the most economically distressed in Guatemala. Our team traveled to Chajul earlier this year and worked with the coffee farmers of the Asociacion Chajulense. This cooperative of 1,400 Fair Trade and organic coffee producers exports to the US, Canada and Europe, and provides techinical support and social services to its membership.

While the Fair Trade movement has improved the lives of Chajul's farmers, they continue to struggle with poverty, and recent climate changes have emphasized the urgent need for diversifying their incomes. With this in mind, the Asociacion Chajulense recently launched a venture to Fair Trade Honey production.  Honey is an ideal supplemental crop. For most of the year, beehives require only a small amount of maintenance, and the annual division of hives allows for a typical yearly increase in production of 50%.  To date, Chajul's successes with honey are impressive, as 100% of their production has made its way to the European market.

Our plan: To spin off the cooperative's honey project into a separate entity solely focused on the production and sale of honey. What started as a small initiative to support coffee farmers can become a highly impactful independent economic development initiative for the region. The potential is remarkable. The modest efforts so far have impacted only 50 producers who are involved in honey production activities. We estimate another 1,000 families stand to benefit from the implementation or our plan.  Resources would be invested in creating the necessary organizational infrastructure and capacity to manage the newly created social venture.  A portion of the funding would be allocated to the expansion of a microloan fund.

Over 85% of the population of Quiche lives on less than $2 a day. The lack of economic development opportunities is a significant detriment to the region.  By creating a more efficient opportunity for revenue growth for a cooperative that is a central part of the community, it will greatly improve the livelihood of the honey bee farmers, their families and the community.

Please go to the website and give our students your vote.

Registration is very easy.  You can find the Belmont idea here.  Just click on "Promote" to give them your vote.  Thanks!

We all know China matters in a big way to the US and the world economy.

They fund much of our debt and probably hold the future of any recovery in their hands.  They produce goods for American companies at prices that make them competitive in the world market.  And they have a lot of potential consumers with growing income and wealth!

Today when I showed up at my office I was reminded in a very personal way that China matters because they are also becoming an entrepreneurial hotbed as well as an economic powerhouse.

There on my desk was a box from Prentice-Hall, which is one of my publishers.  I opened it and out tumbled five copies of a book that was in Chinese. 

"What the heck is this?," I wondered.

Upon a closer look I realized that it was my Bootstrapping textbook translated into Chinese.

While we have been sounding the alarm about the state of the entrepreneurial economy in the US, its seems that the constriction of the small business sector has created even more dire circumstances across the pond in the EU.

From the Wall Street Journal:

As important as small businesses are to the U.S. economy, the problem may be even more acute in Europe. Companies with fewer than 250 workers account for 70% of the private-sector work force in the European Union, compared with 49% in the U.S., according to EU figures.

Like the US, about 99% of employers are small businesses, but the total employment in small firms represents 67% of the EU workforce, which compares to 50% in the US (data from the US SBA and the European Commission).

The article in WSJ goes on to point out that funding for EU small businesses is even tighter than the US:

Business also relies more on banks in Europe than in the U.S. where, at least for bigger firms, capital markets are an important source of finance.

A 2009 report from the European Commission highlights the concerns EU entrepreneurs have about access to debt financing.  This survey found that access to financing -- typical bank financing -- continues to be one of their top worries.

However, there are some glimmers of hope when you dig a little deeper into the EU survey.

Although 46% of EU small businesses report a deterioration of bank lending, 70% said that they were able to get all or at least part of the bank financing they were seeking.  Only 15% said that they were fully rejected.

Times are certainly tough for small firms in the EU, with about half reporting lower profits.

But, as in the US, there is evidence that EU entrepreneurs are hunkering down and doing what they need to do to survive the recession.

(Thanks to Joe Ormont for suggesting this topic).

The driver of the old economy from the twentieth century was the auto industry.  The old saying was that if General Motors sneezes, the rest of the economy caught a cold.

The driver of the economy in this century has been entrepreneurs.  From the sounds of the latest survey from the Kauffman Foundation and the OECD, entrepreneurs seem to have caught swine flu, so the rest of the economy is probably about to go on life support.

In all 23 countries and regions surveyed, firm formation declined and exits increased.  This should be viewed as a leading indicator of job creation -- or should I say the lack of it -- as 75-80% of all new jobs came from small business over the past twenty years.  The only parts of the world that show even a glimmer of hope are Eastern European countries and Brazil, where they have seen higher rates of firm births and growth.  These are parts of the world that began to restructure to foster entrepreneurial activity even before the downturn.  However, these regions have also seen an increase in firm closures.

The U.S. (also the U.K. and to a lesser extent Spain) observed a decrease in firm entries already in 2007, when most other countries were still reporting a steady rise.

In my column this week at the Tennessean I offer some final reflections on our trip to Eastern Europe:

I have been in Eastern Europe with a group of students from Belmont University for the past three weeks.

Although the entrepreneurial climate in this part of the world is much weaker than in the United States, the entrepreneurs we have met have tended to have a global view for their small businesses.

For example, while shopping in a small antiques store in Prague, Czech Republic, we found items that originated from all over Europe.

One item caught the interest of one of my colleagues. But when he inquired about its price, the store owner told him that it had been sold over the Internet to a buyer from overseas.

During our travels, we took our students on a tour of the Ruckl crystal factory, which is a small business in a rural part of the Czech Republic that had been taken private after the fall of communism.

Their craftsmen make fine, handmade leaded crystal using age-old techniques. Although they compete with mass-produced products from China and Poland, Ruckl has been able to compete effectively in the global market. They sell 80 percent of their products outside of their country in outlets throughout the world.

Minimize risks

American small businesses are not keeping up with the global strategies of entrepreneurs from other countries. A 2007 survey sponsored by UPS found that most of America's small businesses have failed to explore the opportunities offered by an increasingly global economy.

Specifically, 67 percent of the U.S. small enterprises are still relying solely on the U.S. economy. This is due to their perception that international trade is too risky, an admitted lack of knowledge about international markets, and their unfamiliarity with regulations related to expanding a business beyond U.S. borders.

While the risks associated with international trade are real, they can be overcome.

The financial risks of engaging in foreign transactions have resulted in many entrepreneurs not getting the products they had paid for or not getting paid at all. Banks generally offer several ways to reduce the financial risks of trade, but the payment procedure ultimately depends on finding partners whom you can trust.

While banks can help -- often for a sizable fee -- there is still some relative degree of risk taken by both sides of the transaction. There is almost always a trade-off in these things. And when thinking about the savings from outsourcing, make sure to be clear on all expenses, including shipping, the cost of transactions gone bad, and bank fees for international transactions.

Entrepreneurs who plan to sell or buy in the global marketplace need to have access to an attorney who knows international trade law. Make sure to get a clear understanding of the cost of regulatory compliance and figure that into your expenses.

The recession is forcing entrepreneurs to think about new sources of materials to keep costs down and new markets to sell products. The global marketplace offers many opportunities for today's entrepreneurs -- just take care to learn the ins and outs.

I have been offering some of my thoughts on entrepreneurship in Eastern Europe during our travels here the past three weeks.

One of my students, John Price, made the following observation about the entrepreneurial brain drain that seems to be taking place in many countries in this part of the world:

We've been able to travel through five different countries while learning about the history and culture along the way. While studying in Europe, I was able to research the economic and entrepreneurial activity in each country we visited. I focused my attention on Hungary, specifically the city of Budapest.  I found that the younger generation of entrepreneurs was nearly non-existent. Many of the younger people in the city have decided to move away to pursue other means of work around Europe. The majority of the entrepreneurs are in Budapest are in their late 60's, which happens to be the average life expectancy of Hungarians.  What will happen when this older generation are no longer able to be active in their businesses? My hope is that Hungary will be able to encourage the younger generation to stay in Hungary and pursue entrepreneurship

The last stop on our visit to Europe brings us to Germany -- specifically Dresden, which was part of East Germany before the 1990 unification.  The students will be staying with family hosts while we are here. 

Entrepreneurship is part economic and part cultural.  One of the most striking forces against entrepreneurship in Germany is its culture.  Individual enterprise is not a part of the historic culture of Germany. 

Young Germans seem to be continuing this non-entrepreneurial value.  From the website International Entrepreneurship:

Entrepreneurship in Germany is low because of the lack of ambition of Germany students. 25% to 30% of young scientists have good chances for creating a business, but only 5% will take this step.

Germany also has an historically high tax rate, which has also stifled entrepreneurial activity.

The data about German entrepreneurship speaks volumes.  In the 2006 Global Entrepreneurship Monitor (last one with data on Germany), Germany had one of the lowest entrepreneurship rates in the study of less than 5% of the population engaged in early stage entrepreneurial activity (less than half of the US rate within the population).  When looking at the motivation for entrepreneurial activity, Germany has the highest rate of entrepreneurs who start businesses out of necessity rather than proactively pursuing opportunities identified in the economy.

Ironically, Germany does lead the pack in one entrepreneurship statistic -- government spending to spur entrepreneurship.  More proof that government meddling does little good.

Germany is a society that is grounded in rules, process and order.  While this has helped create some very successful large corporations, it has not fueled an entrepreneurial engine to their economy.  As the global economy comes out of the recession, this will put Germany at a distinct disadvantage.

Yesterday our travels brought us to the Czech Republic.  We stayed last night in the small town of Cesky Kromlov.  Today we head to Prague, where we will stay for several days.

Entrepreneurship is a major economic driven in the Czech Republic.  According to the Global Monitor Report study from 2006:

• Eight percent of the adult population aged between 18 and 64 is involved in new entrepreneurial activity in the Czech Republic, which puts it among European countries with the highest entrepreneurial activity.
• Compared with other countries, the Czech Republic shows a high share of nascent entrepreneurs and of entrepreneurs who are actually running new businesses.
• In the Czech Republic the prevalence rate of early-stage entrepreneurs is 2.2 times higher for men than women. In established business ownership there are 2.4 times more male entrepreneurs than female ones.
• The most entrepreneurially-active individuals are people aged between 45 and 54. In established business ownership the situation in the Czech Republic matches the situation around the world, but in early-stage entrepreneurial activity this age group is quite significant. On the contrary, individuals over 55 years of age show very little involvement in early-stage entrepreneurial activity (less than two percent).
• Most entrepreneurial activity is based in Prague.
• Entrepreneurial activity is relatively low among students over 18 years of age (only 4.2 percent).
• New entrepreneurial activity is closely related to household income. In low-income households it is only about two percent. On the contrary, in households with high incomes it exceeds fifteen percent.

The large concentration of entrepreneurship in older, more economically prosperous people in the largest city of Prague is somewhat worrisome for the long-term economic outlook for the Czech Republic.

My biggest concern is the relatively low rate of young entrepreneurs.  There have been steps taken to decrease the red tape associated with starting a venture.  But, it seems much more will be required to build an entrepreneurial engine that can sustain this country into the coming decades, especially when we take into account the low birth rates in eastern Europe.

During my visit to Budapest I have learned more about the entrepreneurial climate in Hungary.

First the good news.  Officials have recognized the need to cut the red tape that was getting in the way to launch a new business in this country and greatly streamlined the process.

Now the bad news.  There is a deep cultural belief that property rights will not be protected.  The scars from years under communism have created generations who do not believe that any wealth that they create and property that they control will remain theirs.  The collective memories of property confiscation by the state remain in the stories passed down through the generations.

Also, due to periods of high inflation and a weak job market, young people who would like to start a business cannot afford to.  In fact, many of them cannot even afford rent for a small apartment even when they have a professional level job. As much of 80% of their salary must go for rent.

Taxes also remain very high, especially on small business.

The rule of law is not on solid ground.  Corruption rules markets more than a sound legal system.

In a joint session my students had with Hungarian students today at Corvinus University, it was clear that there is still a heavy dependence on the state.  All ideas for businesses seemed to predicate on "government support" and "government funding."  The culture of socialism remains deep in their psyches.

What is most interesting to me is the general reaction to the American economic crisis.  In a lecture I gave last evening to business people, scientists, and others from the community I found that they have not lost faith in markets and capitalism.  Quite the contrary -- they still believe that free markets are their best hope.

However, there was a strong consensus that capitalism must be deeply rooted in morality and ethics.  This cannot fall to the government, as they have learned through their past experience with strong government control.  It must be built through a strong cultural expectation that business people conduct themselves both ethically and morally.

I have enjoyed my stay in Budapest. Tomorrow we leave for Austria.

 

 

I am blogging today from Budapest.  The level of early stage entrepreneurship in Hungary is 6.9% according to the Global Entrepreneurship Monitor of 2007. 

That same study showed that about 75% of ventures were opportunity based, while 25% were out of necessity.In talking with people here in Hungary I get the sense that this mix may be swinging toward more necessity based entrepreneurs as the economy here worsens.

According to an EU report, Hungary has the lowest opportunity-based entrepreneurial activity in the EU25.  This same report gives Hungary a low entrepreneurial activity and low entrepreneurial climate score. 

There seems to be a strong cultural component to this, as seen in this conclusion from the EU report:

Similar to the average European respondent, the Hungarian is more likely to prefer being an employee to being self-employed. However, Hungary stands out when it comes to the reasons for the respective preference: Hungarian respondents who prefer being an employee, more often than individuals in other countries, say it is because the right entrepreneurial climate (e.g. lack of a business opportunity, lack of finances or excessive red tape) does not exist. Likewise, Hungarians who prefer being self-employed, more often than individuals in other countries, cite economic reasons for this preference and not the freedom and independence that being self-employed entails.