Global Entrepreneurship: May 2009 Archives

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.

We had our Entrepreneurship Banquet for the Center for Entrepreneurship here at Belmont.  It was a night to celebrate the many accomplishments of our students.  We had a full house of students alumni, family, community supporters, faculty and staff join together for this wonderful event -- over 130 people attended.


Here are many of the members of the team we just took out to Anaheim.

Special honors were given to John Price and Sam Dryden and their venture Lifetime Reel, who were named our Student Entrepreneurs of the Year for 2009.



John and Sam's business is making family documentaries.  So as a special thank you to the Moench Family, who have endowed our entrepreneurship speakers series, we gave them a certificate to have a documentary done to commemorate their father who was a very successful entrepreneur here in Nashville.

Here are his two sons, Ernie and Lynn, who attend many of the events their family make possible through their give to our Center.