ENTREPRENURSHIP & NEW VENTURE CREATION IN RUSSIA Key Issues & Policy Directions

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1 THIRD ICIER-BRIC INTERNATIONAL CONFERENCE 2013 Institute of Economics, Federal University of Rio De Janeiro, Brazil November 2013 Policies to Support Entrepreneurship ENTREPRENURSHIP & NEW VENTURE CREATION IN RUSSIA Key Issues & Policy Directions Elena Pereverzeva, Alexey Khromov, Olga Stepanova Moscow International Higher Business School MIRBIS Milano-Bicocca University - Milan, Italy

2 Capital Moscow Official language Russian Population 143,500,000 people

3 SMEs-legal entities: structure by industry, preliminary data of the SME census conducted by Rosstat in 2012 Over half of all IEs - 53% - are engaged in retail and wholesale trade, as well as in repair services, 11% IEs perform transportation and communication activities, 11% IEs provide various services, including real estate operations. Almost 7% IEs are engaged in agriculture and forestry.

4 Employment at SMEs Employment structure by industry, preliminary data of the SME census conducted by Rosstat in 2012

5 Number of officially registered SMEs Number of operating SMEs Employment, persons Individual entrepreneurs Micro - enterprises (legal entities) Small enterprises (legal entities) Medium enterprises (legal entities) SMEs, total 2.9 mln. 1.4 mln. 229 thousand 25.7 thousand 4.6 mln. 1.9 mln. 1 mln. 227 thousand 25.7 thousand 3.2 mln. 5.3 mln. 3.9 mln. 7.2 mln. 2.6 mln. 19 mln.* Sales revenue, trillion RUR. (1 trillion = 1012) 4.5 (111.9 bln. euro) 5.7 (141.7 bln. euro) 13.3 (330.7 bln. euro) 7.3 (181.5 bln. euro) 30.8 (765.9 bln. euro) *For reference: 19 mln. people is 13.3% of total population in Russia.

6 RESEARCH METHODOLOGY Quantitative Method focus of today s paper Survey questionnaire with ICT entrepreneurs 50 ICT firms Survey questionnaire with non-ict entrepreneurs 50 non-ict firms Survey questionnaire with Control Group 30 non-entrepreneurs FOR THE SELECTION OF MICRO, SMALL AND MEDIUM ENTERPRISES FOR OUR RESEARCH, WE ACCEPT THE DEFINITION OF MICRO, SMALL AND MEDIUM ENTERPRISES 6

7 RESEARCH FINDING - INDIVIDUAL AND PERSONALITY TRAITS % 74% 52% 62% 66% Good 5 36% 26% 32% 22% 36% 24% 14% 16% 8% 8% 4% 8% 8% 2% 2% 4% ICT NON ICT ICT NON ICT ICT NON ICT Average Poor No opinion Your ability to quickly recognize start-up opportunities Your ability to take risk Your ability to organize the resources required for start-up In general the study approved that the entrepreneurs in Russia highly value individual and personal traits.

8 RESEIRESEARCH FINDING - INDIVIDUAL AND PERSONALITY TRAITS NGS INDIVIDUAL & PERSONALITY TRAITS Interpretation: 1. Almost 56% of the respondents across ICT and 74% non-ict sectors consider they have the ability to recognize the start-up opportunities 2. 52% of ICT and 62% of non-ict consider they have the ability to organize the resources for start-up 3. of ICT and 66% of non-ict perceive themselves as having the ability to take-risk Entrepreneurs have quite positive self assessment of their own capabilities in terms of recognizing the start-up opportunities, ability to take risk and organize resources for start-up. There is no significant difference in the perception of entrepreneurs across ICT and non-ict sectors. 8

9 RESEARCH FINDING - SOCIO-CULTURAL CONTEXTS Survey Findings : The variable was aimed at understanding the socio-cultural context supporting entrepreneurship as perceived by the ICT and non-ict entrepreneurs % 42% 54% 5 66% % 44% 58% GOOD AVERAGE 5 POOR 38% 32% 34% 32% 34% 36% 26% 24% 28% 42% NO OPINION 28% 18% 18% 8% 8% 22% 4% 6% 4% 8% 4% 6% 12% 8% 6% 6% 12% 14% 8% 6% ICT NON ICT ICT NON ICT ICT NON ICT ICT NON ICT ICT NON ICT ICT NON ICT ICT NON ICT Presence of family-based entrepreneurship in your society Culture of promoting venturing and risk-taking in the community Culture of encouraging creativity and innovation Entrepreneurship considered as a desirable career choice in your society Opportunities for new venture creation Entrepreneurial opportunities for your gender Entrepreneurial opportunities for people in your age category

10 Interpretation: 1. Almost 47% of the respondents across ICT and 56% non-ict sectors perceive the socio-cultural environment as encouraging creativity and innovation; 2. 5 of ICT as against only 6 of non-ict respondents perceive there exists opportunity for new venture creation in the society; 3. 42% of the respondents across ICT and 5 non-ict sectors perceive culture in Russia promoting new venture creation and risk taking; 4. Only of ICT as compared to 56% of non-ict respondents indicate the presence of family-based entrepreneurship in the Russian society; 5. 5 of the respondents across ICT and non-ict sectors consider becoming an entrepreneur as a desirable career choice. Entrepreneurs across ICT & non-ict sectors perceive socio-cultural environment as supporting entrepreneurship by encouraging creativity and innovation and to some extent risk-taking. The role of the family usually is not strong in Russia, but this research are indicate this factor as more strongly by the non-ict entrepreneurs; instead opportunity for new venture creation is perceived more strongly by the non-ict entrepreneurs.

11 RESEARCH FINDING - GOVERNMENT POLICIES AND PROCEDURES Survey Findings: The variable was aimed at understanding government policies and programs supporting new venture creation as perceived by ICT and non-ict entrepreneurs % 28% 44% 32% 38% 26% 34% 42% 48% GOOD % 34% 36% 36% 44% 36% 36% 22% AVERAGE POOR NO OPINION 22% 14% 16% 16% 22% 26% 18% 18% 16% 16% 16% 14% 4% 6% 4% 4% ICT NON ICT ICT NON ICT ICT NON ICT ICT NON ICT ICT NON ICT Special government schemes & programs for start-ups Favorableness of overall government policies Favorableness of taxation system Ease of obtaining permits and licenses (VAT code, etc.) Favorableness of physical, transportation and ICT Infrastructures

12 Interpretation: 1. 34% of the ICT respondents consider the physical and ICT special government schemes and programs as favorable for them; 2. of ICT and 44% non-ict respondents perceive overall government policies as favorable in supporting start-ups; 3. 32% ICT and 38% non-ict respondents consider the taxation system as not burdensome for the start-ups; 4. Only 26% of ICT and 34% of non-ict respondents perceive that the government is investing by way of special programs and schemes to support start-ups; 5. 42% of ICT and 48% of non-ict respondents consider the physical and ICT infrastructure as favorable for them. Overall, entrepreneurs across ICT & non-ict sectors perceive government policies as generally favorable in supporting start-ups. This result may be not reflect hole situation in the country, but reflect strong regional government policy for SME support from Moscow region.

13 RESEARCH FINDING - ACCESS TO FINANCE Survey Findings: The variable was aimed at understanding the availability of access to information, opportunity for knowledge and skill building support as perceived by the ICT & non-ict entrepreneurs % 24% 36% 44% % 46% 26% 24% 28% 34% 24% 24% 26% 28% 28% 5 46% 24% 14% 12% 18% 16% 24% 12% 16% 4% 6% 12% 12% 6% 6% 6% ICT NON ICT ICT NON ICT ICT NON ICT ICT NON ICT ICT NON ICT GOOD AVERAGE POOR NO OPINION Availability of Government subsidies Availability of family/friends funds Availability of Venture Capital Funds Availability of funds from private individuals/angel funds Availability of bank loans

14 RESEARCH FINDINGS ACCRESEARCH FINDING - ACCESS TO FINANCE ESS TO FINANCE Interpretation: 1. Only 36% of the ICT and 44% of non-ict respondents perceive availability of government subsidies at the time of start-up 2. 5 of the ICT and non-ict respondents consider ease of access to funds from family and friends at the time of start-up 3. Only 18% of the ICT and 24% of the non-ict respondents perceive ease of availability of venture capital funds 4. 5 of the ICT respondents perceive ease of availability of funds from Angel investors as against only of non-ict respondents 5. 46% of ICT and non-ict respondents state the possibility of availing bank loans as very low to start the enterprise Both the groups, besides the ease of access to finance from family and friends, availability bank loans and government subsidies consider as more available. Both the groups consider venture capital funds as very difficult. 14

15 RESEARCH FINDING - OPPORTUNITY FOR KNOWLEDGE AND SKILL BUILDING Survey Findings: The variable was aimed at understanding the support available for Internationalization to ICT & non-ict entrepreneurs % 38% 46% 32% 38% 44% 38% 46% 34% 48% 36% 48% 42% 36% 42% GOOD 7 AVERAGE 6 22% POOR 5 42% 24% 42% 42% 22% 36% 36% 26% 34% 26% 32% 34% NO OPINION 26% 28% 18% 26% 12% 24% 16% 14% 18% 12% 18% 14% 22% 16% 8% 4% 4% 8% 12% 12% 14% 16% 8% 6% ICT NON ICT ICT NON ICT ICT NON ICT ICT NON ICT ICT NON ICT ICT NON ICT ICT NON ICT ICT NON ICT Encouragement of entrepreneurship by the education system Availability of formal training for entrepreneurship Start-up counseling & assistance at college/universities Support from Industry associations for networking, information etc. Incubators and/or Technology parks that offer one stop service for businesses Assistance from universities/r&d institutions in transfer of R&D Special programs to promote products and services of start-ups Opportunities for publicprivate collaboration to facilitate market entry

16 RESEARCH FINDING - OPPORTUNITY FOR KNOWLEDGE AND SKILL BUILDING Interpretation: OPPORTUNITY FOR KNOWLEDGE & SKILL BUILDING 1. Only 38% and non-ict respondents perceive education system in Russia encourages entrepreneurship 2. 48% of ICT and 36% of non-ict respondents perceive the support available from Universities for research & development 3. 44% of ICT as against 38% of non-ict respondents perceive that they receive support from Industry associations 4. Only 22% of ICT and 28% of non-ict respondents perceive that there are special programs for start-ups 5. 46% of ICT and 24% of non-ict respondents perceive that there is support available from Incubators and technology parks 6. 46% of ICT and of non-ict respondents perceive that there is availability of formal training for becoming an entrepreneur 7. 44% of ICT and 38% of non-ict respondents perceive that there is opportunity for publicprivate collaboration The overall situation concerning this variable is looking optimistic. But need to provide more training programs for soft-skill development of start-ups. 16

17 RESEARCH FINDING - INTERNATIONALIZATION Survey Findings: The variable was aimed at understanding the support available for Internationalization to ICT & non-ict entrepreneurs % 52% 5 38% 54% 38% 44% 62% 56% GOOD AVERAGE 6 POOR 5 28% 32% 26% 46% 22% 34% 32% 26% 22% 32% NO OPINION 14% 8% 28% 12% 24% 2% 6% 14% 12% 16% 8% 2% 6% 12% 4% 6% 4% ICT NON ICT ICT NON ICT ICT NON ICT ICT NON ICT ICT NON ICT Attitude towards Internationalization Information & skills required for Internationalization Government agencies facilitating new firms entry into domestic & international markets Access to financial resources to tackle internationalization Foreign language abilities in your company

18 RESEARCH FINDINGS RESEARCH FINDING - INTERNATIONALIZATION INTERNATIONALIZATION Interpretation: 1. 58% of ICT and 52% of non-ict respondents reflect a favorable attitude towards Internationalization of ICT respondents as against 38% of non-ict respondents perceive that they have adequate information and skills required for Internationalization 3. 54% of ICT and 38% of non-ict perceive the support from Government agencies facilitating new firms entry into domestic & international markets 4. 44% of ICT as against of non-ict respondents perceive that it is possible to access finance for internationalization 5. 62% of ICT and 56% of non-ict respondents claim to have a good working knowledge of the English language. Overall, both groups of entrepreneurs reflect a positive attitude towards internationalization, and Govenment agency are support them to tap international markets. Internationalization is more easy for ICT sector. 18

19 CONTROL GROUP FINDINGS % 3% 3% 3% 7% 7% 7% 13% 23% 43% 43% 43% 37% 53% 53% 57% 5 53% 43% 7% 13% 17% 37% 37% 47% 53% 6 3% 13% 17% 6 63% 7 87% 67% 3% 3% 13% 37% 57% % 7% 7% 7% 7% 53% 47% 57% 57% 63% 43% 47% 7% 13% 6 37% 47% 27% 37% 23% 27% 7% 23% 17% 17% 13% 13% 13% 3% 7% 3% 3% 5 33% 23% 23% 33% 27% 13% 7% 7% 7% 7% 3% 37% 37% 43% 27% 23% 17% 13% 13% 3%

20 RESEARCH FINCONTROL GROUP FINDINGS DINGS INTERNATIONALIZATION Interpretation: Individual & Personality Traits- The findings are in line with those of ICT and non-ict entrepreneurs. Socio-cultural environment The findings highlight that the cultural in Russia supports entrepreneurship, which is in line with the perception of ICT and non-ict entrepreneurs. Govt. Programs & Policies the findings are the quite similar on all variables except the ICT infrastructure where 37% of the non-entrepreneurs perceive it as good as against only 28% of ICT entrepreneurs. Non-entrepreneurs relatively have a better perception of government s role in promoting entrepreneurship. Access to Finance The findings reveal that for the access to finance entrepreneurs rely mainly on family/friends and that and Private equity funds relatively more available. The findings are in close proximity to those of the ICT and non-ict entrepreneurs. Opportunity for Knowledge & Skill Building - The findings are in line with those of ICT and non-ict entrepreneurs. Internationalization The findings reveal that the entrepreneurs have a positive attitude towards internationalization, but lack the other necessary support measures to do so. This validates the perception of the entrepreneurs. Overall, the control groups findings validate the findings of the study. Milano-Bicocca University - Milan, Italy 20

21 LIMITATIONS AT THIS STAGE.. The sample size is very small and reflect enterprinerial ecosystem in Moscow region only, is not representative of all regions across Russia. The ecosystem model comprising of six framework conditions is not exhaustive to cover all aspects of the entrepreneurial environment. The study provides a macro view of the factors supporting ICT entrepreneurs. Despite the limitations, the study at this stage contributes to the understanding of the determinants of entrepreneurship which support and harness the growth on entrepreneurship in Russia. 21

22 The ecosystem is tailored around its own unique environment. It operates in an environment with reduced bureaucratic obstacles, in which government policies support the unique needs of entrepreneurs and tolerate failed ventures. It actively encourages and invites ventures. The ecosystem is reinforced, not created from scratch, by government, academic or commercial organizations. It is relatively free from, or is able to change, cultural biases against failure or operating a business. It advances successes, which in turn attract new ventures. The ecosystem is often supported by dialogue among various entrepreneurship

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