Global Entrepreneurship Monitor. Sensis GEM Australia, Kevin Hindle Susan Rushworth

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1 Global Entrepreneurship Monitor Sensis GEM Australia, 2002 Kevin Hindle Susan Rushworth

2 Sensis TM GEM Australia, 2002 Kevin Hindle Swinburne University of Technology Susan Rushworth Swinburne University of Technology K HINDLE AND S RUSHWORTH All rights reserved. No part of this publication may be copied or reproduced, stored in a retrieval system or transmitted in any form or by any means without the prior written permission of the publisher. Sensis Pty Ltd is Principal Sponsor of this independent report. The contents and findings of this report do not necessarily represent Sensis views. The material contained in this publication is general only and is not intended as advice on any particular matter. No reader should act or fail to act on the basis of this report. The authors and Swinburne University of Technology have attempted to ensure accuracy and completeness of the information contained in this publication. However, no responsibility can be accepted for any errors and inaccuracies that occur. Swinburne University of Technology and Sensis Pty Ltd disclaim to the maximum extent permitted by law all liability, costs and expenses incurred by any person in connection with the content of this report.

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4 Preface by Andrew Day, CEO, Sensis Pty Ltd It is with great pleasure that I welcome you to the Sensis GEM Australia, 2002 report. This report provides a detailed analysis of the nature, level and impact of entrepreneurial activity in Australia a key element of economic growth that, until recently, remained largely unexplored. Entrepreneurship describes our ability to create new ventures the powerful blend of vision, drive, confidence, talent and support that underpins much of our commercial progress. In partnership with invention, entrepreneurship can be seen as the engine of economic growth the spark that creates new products, services, investments, businesses, employment and national wealth. As such, entrepreneurship is fundamental to the fulfilment of both our nation s and our personal economic and social prosperity. It was for this reason that, in 2000, Sensis Pty Ltd (formerly Pacific Access Pty Ltd) chose, as part of our commitment to Australia s commercial development, to play a principal role in establishing the Global Entrepreneurship Monitor in Australia. Previously, Australian analysis had focused largely on the activities of existing businesses. It did not allow for entrepreneurial activities and their impact on the national economy. I am proud to say that, as a result of the work undertaken by the Australian Graduate School of Entrepreneurship, Swinburne University of Technology, we can now all benefit from this growing bank of knowledge and use it as impetus for the formulation of supportive policy. GEM Australia represents our nation s contribution to the annual Global Entrepreneurship Monitor project. The Global Entrepreneurship Monitor brings together respected researchers from participating countries (37 this year) in a co-ordinated effort to analyse and report on international entrepreneurial activity. Each country s findings are delivered individually and, at the same time, incorporated into a global review. Australia s participation in GEM Australia provides our government, business practitioners, researchers, media and the general public with the ability to not only monitor our entrepreneurial performance, but to benchmark it against other world economies. This year s GEM Australia study incorporates a number of new initiatives, most notably: The international review is being expanded to consist of two GEM Executive Reports a summary report and a more detailed analysis that will be delivered in March 2003; The first in a series of Focus Reports this year covering the issue of Indigenous Entrepreneurship in Australia; An increasing level of trend identification. Indeed, the analysis of Australia s entrepreneurial response to changes in the economic climate provides a compelling argument for an increase in the level of support for our entrepreneurial culture and framework. While this report is totally self-contained, it is best read in conjunction with the international GEM Summary Report, which can be found at This will provide you with a detailed, global understanding of entrepreneurship and an insight into Australia s international standing. In introducing this report to you, I would like to thank the authors Kevin Hindle and Susan Rushworth. It is their passion and professional approach that has made GEM Australia the powerful contributor to our economic knowledge that it is today. I would also like to acknowledge the contribution of the 3,378 Australians surveyed and 37 expert respondents. Their efforts and input provide the foundations on which this report is built. Finally, I would like to thank you for your interest. While this report provides valuable understanding, it is, in reality, merely a starting point. It is our continued commitment to knowledge and action that will ultimately realise our entrepreneurial and economic futures.

5 Table of Contents EXECUTIVE SUMMARY INTRODUCTION: THE GEM AUSTRALIA PROJECT PART ONE: OBSERVATIONS Entrepreneurial activity in Australia Methodology special notes Results how does Australia score? How does this compare with other countries? Who and where are our entrepreneurs? What types of businesses are they creating? The entrepreneurial support environment in Australia Evidence from the GEM experts survey Access to early stage finance Classic Venture Capital Start-up funding Entrepreneurial activity and economic growth The Global Pattern Growth of GEM Australia surveyed businesses PART TWO: EXPLANATIONS Why did entrepreneurial activity decline so markedly? Distinguishing between Start-ups and New Firms The nine-eleven effect Global economic activity Why didn t USA scores fall? Australia s entrepreneurial activity The deeper cause: lack of entrepreneurial capacity Australia s potential Synthesis Explanations for observed entrepreneurial activity in Australia Factors associated with start-up participation Factors associated with new firm participation Motivation: opportunity versus necessity Factors associated with belief one has the skills to start a business Factors influencing male and female decisions to be an entrepreneur

6 What did this year s experts emphasise? Are there any trends or patterns in three years of data? PART THREE: IMPLICATIONS The value of GEM as a monitor A deeper understanding of the innovation process is needed Approaches to the study of innovation Innovation from the perspective of the firm: a model Innovation, opportunity and entrepreneurial capacity The general public s perception of innovation Australia s existing innovation policy GEM experts emphasise the importance of entrepreneurial capacity Policy themes Policy recommendations Schools Universities Small and medium enterprises The first collaborative development centre Sectoral targeting The key issues for SME management GENERAL REFERENCES PART FOUR: THE SENSIS TM GEM AUSTRALIA, 2002 FOCUS REPORT: INDIGENOUS ENTREPRENEURSHIP IN AUSTRALIA APPENDIX 1: SENSIS TM GEM AUSTRALIA, 2002 EXPERT RESPONDENTS APPENDIX 2: SENSIS TM GEM AUSTRALIA, 2002 RESEARCH TEAM APPENDIX 3: GEM AUSTRALIA PRINCIPAL SPONSOR APPENDIX 4: GEM AUSTRALIA METHODOLOGY

7 LIST OF TABLES AND FIGURES Table 1 GEM participant countries Table 2 Respondents by entrepreneurial activity type Table 3 Participants in entrepreneurial activity by geographic region Table 4 Australia s Entrepreneurial Activity Scorecard Table 5 Angel activity indicators 2000 to Table 6 Australia s Entrepreneurial Effectiveness Scorecard Table 7 Start-up employment expectations: 2002 vs Table 8 New Firm employment expectations: 2002 vs Table 9 Australia s Entrepreneurial Growth Scorecard Table 10 Entrepreneurial capacity: expert assessment rankings Table 11 Summary of expert assessment of Australia s strengths and weaknesses Figure 1 The GEM theoretical model Figure 2 International comparison of entrepreneurial activity: GEM Figure 3 International comparison of entrepreneurial activity: GEM Figure 4 Countries experiencing significant decrease in TEA index from 2001 to Figure 5 Entrepreneurial activity participation: male-female comparison Figure 6 Entrepreneurial activity by age range Figure 7 Opportunity and necessity entrepreneurship by age range Figure 8 Start-ups and new firms by age range Figure 9 Entrepreneurial activity by gender within state Figure 10 Entrepreneurial activity by gender within region Figure 11 Opportunity and Necessity entrepreneurship by region Figure 12 Start-up and new firm participation by region Figure 13 Entrepreneurial activity by business type Figure 14 Cultural and social norms: international comparison of expert opinion Figure 15 Support for female entrepreneurs: international comparison of expert opinion Figure 16 Comparison of selected questions from the GEM expert survey Figure 17 Angel funding by gender Figure 18 Start-up funding requirements Figure 19 The Big-I innovation process (source: Hindle 2002a)

8 Executive Summary DOMINANT THEME IN witnessed a significant fall in Australia s Total Entrepreneurial Activity (TEA) as measured by GEM s principal metric, the TEA index. This was part of a global phenomenon affecting most of the GEM 2001 participant countries. Only two countries, India and Argentina, recorded a statistically significant rise in entrepreneurial activity participation, whereas 15 countries had statistically significant falls. Australia s decline was the second largest in absolute terms and the fifth largest as a proportion of its 2001 TEA score. MAJOR OBSERVATIONS Australian entrepreneurial activity declined significantly from last year, both in absolute scores and ranking relative to other participating countries: The start-up participation rate dropped from nine percent to 3.8 percent and the rank from fourth to 18th. The new firm participation rate dropped from 7.2 percent to 5.2 percent and the rank from first to 10th. Overall, Australia s Total Entrepreneurial Activity (TEA) participation rate dropped from 16.2 percent to 8.7 percent and the rank from third to 15th. Entrepreneurial activity participation for Australian males dropped from 21.6 percent to 11.7 percent and for females from 10.3 percent to 5.6 percent. The proportion of female entrepreneurs to male entrepreneurs remained unchanged (at 48 percent), as did the proportion of participants who were motivated by opportunity rather than necessity (at 77 percent). Australia was not alone in experiencing a sharp decline in entrepreneurial activity. Twenty-three countries that participated in GEM in 2001, experienced a decrease (not all significant) in entrepreneurial activity participation rates in this year s study. In general, start-up participation decreased much more than new firm participation rates. On average, across all GEM 2001 countries, the new firm participation rate actually rose slightly. Australian business angel participation dropped from 3.8 percent to 1.8 percent and the rank fell from equal sixth to 26th. The average size of business angel investments also fell slightly. The venture capital industry in Australia strengthened, with an increase in total funds invested to end In terms of early stage venture capital, Australia ranked 16th of 30 countries, compared with 16th of 24 last year. As was the case last year, the participation rate in necessity-driven entrepreneurial activity was significantly associated with projected economic growth. While the relationship between opportunity-driven entrepreneurial activity and economic growth was positive, it was not statistically significant. Start-up and new firm participation were both significantly associated with projected economic growth. The national experts interviewed for the GEM 2002 study identified culture, education, government policy and financial support as the main weakness areas impeding entrepreneurial activity the same four areas as last year. But they also identified positive aspects of Australian culture and education as significant strengths. Lack of entrepreneurial capacity skills and motivation to act on opportunities was also clearly identified as a major area of weakness in Australia. EXPLANATIONS The decline in entrepreneurial activity exhibited by many countries was attributable to a decline in entrepreneurial confidence, which has had a dramatic impact on start-up participation. However, it was noticeable that several countries, including the USA did not suffer significant declines in start-up rates. The distinguishing, common factor among countries badly affected was lack of entrepreneurial capacity, as assessed by the national experts within each country. 1

9 This and a range of further evidence and analysis lead the GEM Australia team to conclude that the dramatic fall in Australian entrepreneurial activity, though possibly triggered by external events, was actually based in Australia s aggregate lack of entrepreneurial capacity. This lack of entrepreneurial capacity, in turn, is a manifestation of a culture that is not robustly entrepreneurial. The sequence from base to apex runs: an infertile culture has failed to generate an aggregate level of skills and motivation (together constituting entrepreneurial capacity) capable of withstanding strong shocks to the system or even the normal vicissitudes of the business cycle. Weakness in entrepreneurial capacity, in its turn, means that any major blow to confidence (such as nine-eleven ) is liable to produce a fall in the Australian start-up rate that is proportionally much higher than in countries (such as the USA) that have higher levels of entrepreneurial capacity based on genuinely robust entrepreneurial cultures. Despite many exemplary exceptions, it is fair to say that Australia s new venturing culture seems to favour speculation rather than calculation; comfort and lifestyle orientation rather than the challenge of building a growth-oriented enterprise; and a short reward horizon rather than pursuit of long-term opportunity. Accordingly, any severe shock to business confidence is likely to have significant effects upon start-up rates. The reason for the great fall is thus disarmingly simple. At the aggregate level, Australia is an entrepreneurial country in good times and a nonentrepreneurial country when times are perceived to be uncertain. IMPLICATIONS Extrapolation from survey results suggests, conservatively, that around 85,000 businesses that might have started in 2002 did not do so, due to a decline in entrepreneurial confidence. Such disproportionate curtailment of start-up activity is likely to flow from future setbacks in general business confidence until Australia, in its policy and practice, seeks to cure the ailment low entrepreneurial capacity not the symptom. This implies that Australia and its SME sector in particular must clarify the way in which it conceives of innovation. We must embrace a broader, Big-I definition of innovation. Whereas small-i innovation focuses on the importance of new ideas, Big-I innovation focuses on the process of transforming them to tangible market outcomes. Currently in Australia, a small-i perspective of innovation dominates both popular perception of innovation and public policy concerning it. If national entrepreneurship is to flourish, this orientation should change in favour of a Big-I policy perspective that stresses the importance of value-creating commercialisation through applied entrepreneurial capacity. The critical importance of entrepreneurial capacity to the innovation process is compatible with the GEM research model and other leading-edge research into the innovation process. This year s stark drop in entrepreneurial activity leads to one, dominant implication for innovation policy: Big-I not small-i must become the perspective adopted for public and private sector policy formation in the areas of innovation and entrepreneurship. This in no way belittles the importance of new knowledge (the R of R&D ). But, for the purposes of innovation policy, primacy must be given to the need to develop (the D of R&D ) and transform knowledge to produce economic value embodied in successful businesses. 2

10 The report presents five major policy recommendations, together with suggestions on how and by whom they might be implemented: 1. Schools: The creation, development and implementation of a national, assessable high school curriculum for the study of innovation and entrepreneurship. 2. Universities: The establishment of an annual national conference to examine and disseminate leading-edge knowledge pertaining to the enhancement of Australia s entrepreneurial capacity, by translating leading-edge theory into workable procedures for practising managers. 3. The SME Sector: The creation of an Australian SME entrepreneurial knowledge-transfer network, providing free on-line delivery to the business community of useful knowledge, teaching materials and packages currently developed by SMEs with high levels of proven entrepreneurial capacity. 4. Collaborative Development Centre: The creation of a national Collaborative Development Centre for research, dissemination and application of knowledge about building entrepreneurial capacity. 5. Sectoral Targeting: The development and implementation of a targeted pilot program to test the efficacy of creating a diversified, national Indigenous entrepreneurship education and training program for Australia. The rationale for this last recommendation is summarised in a special Focus Report on Indigenous Entrepreneurship in Australia. Focus Reports exploring selected areas and aspects of Australian entrepreneurship will, from now on, become an annual feature of the GEM Australia project. Authors may or may not be part of the regular GEM analytical team. SYNTHESIS This year s GEM study establishes the total entrepreneurial activity (TEA) index, and several other GEM metrics, as vital lead indicators of important trends in economic activity that might otherwise go undetected. In particular, no other established economic evaluation agencies are alert to the implications of major economic and social phenomena upon national and international start-up activity. The key message for Australians of this year s GEM Australia report is that, until we develop more substantial national entrepreneurial capacity, the level of entrepreneurial activity in Australia will be liable to capricious fluctuation: it will never be robust or reliable. Every Australian enterprise that genuinely strives to grow and prosper must be vigilant in developing its entrepreneurial capacity. Managerial capacity administering what already exists will not suffice. The essential task for survival and development will be the ability to transform new knowledge into economic value. 3

11 Introduction The GEM Australia project PROJECT OVERVIEW The Global Entrepreneurship Monitor (GEM) project originated in September 1997 as a joint research initiative by Babson College (USA) and London Business School, to bring together international specialist scholars in entrepreneurship to study the complex relationship between entrepreneurship and economic prosperity. From the outset, the project was designed to be a long-term multinational enterprise, with a growing number of partner institutions. GEM was launched in 1999 with 10 countries. In 2002 it has expanded to 37 countries. Participant countries (by year of joining) are shown in Table 1. Table 1 GEM participant countries Year Countries 1999 Canada, Denmark, Finland, France, Germany, Israel, Italy, Japan, UK, USA 2000 Argentina, Australia, Belgium, Brazil, India, Ireland, Norway, Singapore, Spain, South Korea, Sweden 2001 Hungary, Mexico, Netherlands, New Zealand, Poland, Portugal 1, Russia, South Africa 2002 Chile, China, Croatia, Hong Kong, Iceland, Slovenia, Switzerland, Taiwan, Thailand. Each participating country produces an independent, national report (GEM Australia, GEM USA, GEM Japan etc.), which explores in more detail the nature, extent and effects of entrepreneurship within the individual country, including selected comparisons with other nations. At the international level, two coordinating documents (the GEM Executive Reports) are produced. The first or summary executive report, appearing about mid- November each year, presents major findings across all 1 No longer involved in 2002 participating countries and describes any emerging patterns. The second or full executive report, appearing about mid-march of the following year, provides a detailed analysis of these figures. RESEARCH QUESTIONS AND THEORETICAL FRAMEWORK GEM explores three fundamental questions: Does the level of entrepreneurial activity vary between countries, and, if so, to what extent? Does the level of entrepreneurial activity affect a country s rate of economic growth and prosperity? What makes a country entrepreneurial? These questions are explored in the context of a theoretical model illustrated in Figure 1. Before GEM, most studies of economic performance focused on established enterprise the status sector of the economy. The value of emerging enterprise was missing. GEM focuses its attention on a set of factors that specifically influences the entrepreneurial sector. These are termed the Entrepreneurial Framework Conditions, listed and explained in more detail in Appendix 4. These nine conditions are the main determinants of the entrepreneurial environment. They achieve their influence in combination with entrepreneurial opportunity and entrepreneurial capacity. These factors environment, opportunity and capacity (which includes both skills and motivation to capitalise on opportunity) act together. Their combination determines the rate of firm birth, death and growth (business churning), which in turn contributes to economic growth and prosperity. RESEARCH METHODOLOGY Three main data collection methods are used: An adult population survey, randomly sampling a minimum of 2,000 typical adults. Face-to-face open-ended interviews with at least 36 experts (called key informants ) on various aspects of entrepreneurship. These experts also complete a 4

12 detailed questionnaire. The experts interviewed for the GEM Australia, 2002 report are detailed in Appendix 1. The use of selected national economic data, measured in standard units, from credible international sources. Appendix 4 of this report contains a detailed explanation of the methods employed to collect data for GEM Australia and the forms of secondary sources used. SUMMARY OF PREVIOUS YEARS FINDINGS The three years of research 1999 to 2001 found that entrepreneurial activity did vary significantly between countries. In 2001, activity varied from a low of five per 100 persons in Belgium and Japan to up to 18 per 100 in Mexico (Reynolds et al. 2001: 4). In both 2000 and 2001, Australia was one of the most entrepreneurially active countries, ranking fourth of 21 in 2000 and third of 29 in However, this reflected a country where many small businesses were started, rather than a country that produced world class companies. Australian experts consistently identified culture, education, government support and financial support as areas impeding Australia s entrepreneurial performance. FORMAT OF THE SENSIS TM GEM AUSTRALIA, 2002 REPORT This year we introduce some changes to the format of the GEM Australia report. The basic philosophy is to present the data first, possible explanations of the data second and implications particularly policy implications third. This year we also introduce what we hope will become a regular feature in all future years: a Focus Report on an aspect of entrepreneurship that is of major importance to the development of Australian economic and social policy. Part One: Observations. This section summarises what the data tell us in answer to GEM s three principal questions, both in Australia and by comparison with other participant countries. Part Two: Explanations. This section selects the most significant observations from Part One and seeks to explain them, offering insights from analysis of relationships within the data together with any relevant contextual influences. Part Three: Implications. This section examines the key messages from Part One and Part Two in terms of implications for Australians in general and for policy makers in particular. Five policy recommendations are made. Part Four: Focus Report. This year we present a Focus Report on Indigenous Entrepreneurship in Australia written by Professor Kevin Hindle. Figure 1 The GEM theoretical model General National Framework Conditions Major Established Firms (Primary Economy) These include many factors measured annually in the World Economic Forum's Global Competitiveness Report Micro, Small and Medium Firms (Secondary Economy) National Economic Growth (GDP, Jobs) Social, Cultural, Political Context Entrepreneurial Framework Conditions Financial Government Policies Government Programs Education and Training R&D Transfer Commercial, Legal Infrastructure Internal Market Openness Access to Physical Infrastructure Cultural, Social Norms Entrepreneurial Opportunities Entrepreneurial Capacity Skills Motivation Business Churning 5

13 Part One Observations This section of the report deals with data. It reports findings in three sub-sections: 1. The level of entrepreneurial activity in Australia; 2. The effectiveness of Australia s support environment for entrepreneurial activity; 3. The relationship between entrepreneurial activity and economic growth. Each sub-section ends with a scorecard summarising the key data. Part One thus brings together the presentation of information that was dispersed among the three main sections of previous GEM Australia reports, but leaves all but the most basic interpretation of the data to the sections that follow. ENTREPRENEURIAL ACTIVITY IN AUSTRALIA METHODOLOGY SPECIAL NOTES The methodology of the GEM project has already been outlined in the Introduction, and is covered in detail in Appendix 4. However, certain points deserve particular mention. The distinction between opportunity-driven and necessity-driven entrepreneurial activity, introduced for the first time in 2001, proved so useful, that it has been retained and now forms a key component of interpreting GEM findings. In 2002, the sample size of the Australian population survey was increased and the sampling approach modified. The base sample size was increased to 3,000 adults and the sample was stratified by state, to obtain an equal number of respondents in each state. Northern Territory was grouped with South Australia and the Australian Capital Territory with New South Wales, giving six states with 500 respondents per state. This approach allows more reliable comparison of results between states. For further details, see Appendix 4. An oversample of 300 respondents for Queensland was also supported, bringing the total target sample size for Australia to 3,300. In fact, 3,378 adults were surveyed. RESULTS HOW DOES AUSTRALIA SCORE? Australia s results showed a dramatic drop from last year, both in absolute scores and in ranking relative to other participating countries: Accordingly, as a point estimate, the start-up participation rate dropped from nine percent to 3.8 percent and the rank fell from fourth to 18th. The highest start-up participation rates were in Thailand (11.6 percent) and India (10.9 percent). The new firm participation rate dropped from 7.2 percent to 5.2 percent and the rank from first to 10th. The highest new firm participation rates were in Korea (9.3 percent) and Brazil (8.5 percent). Overall, Australia s total entrepreneurial activity (TEA) participation rate dropped from 16.2 percent to 8.7 percent and the rank from third to 15th. The highest TEA participation rates were in Thailand (18.9 percent) and India (17.9 percent). Entrepreneurial activity participation for Australian males dropped from 21.6 percent to 11.7 percent. For Australian females, it dropped from 10.3 percent to 5.6 percent. The proportion of female entrepreneurs to male entrepreneurs remained unchanged at 48 percent. Business angel participation dropped from 3.8 percent to 1.8 percent and the rank from equal sixth to 26th. For the first time since measurement commenced in Australia, the participation rate in start-ups (businesses paying wages for less than 3 months or not at all) was lower than the participation rate in new firms (businesses that had first paid wages more than three months but less than 42 months ago i.e. between January 1999 and March 2002). 6

14 Figure 2 International comparison of entrepreneurial activity: GEM 2002 Start-ups New firms Thailand India Chile S. Korea Argentina New Zealand Brazil Mexico China Iceland USA Ireland Canada Norway AUSTRALIA Switzerland Israel Hungary S. Africa Denmark Singapore Italy UK Germany Slovenia Netherlands Spain Finland Poland Taiwan Sweden Croatia Hong Kong France Belgium Russia Japan Percent of population participating Figure 3 International comparison of entrepreneurial activity: GEM 2001 Start-ups New firms Mexico New Zealand AUSTRALIA Korea Brazil Ireland USA Hungary India Canada Argentina Italy Poland S. Africa Finland Norway Denmark Spain UK France Portugal Germany Russia Sweden Netherlands Israel Singapore Japan Belgium Percent of population participating 7

15 In spite of the dramatic drop in entrepreneurial activity, the proportion of participants who claimed to be motivated by opportunity rather than necessity remained constant at 77 percent. HOW DOES THIS COMPARE WITH OTHER COUNTRIES? Figure 2 illustrates the entrepreneurial activity performance of the 37 countries participating in GEM Australia s rank dropped to 15th, compared with third last year 2. Figure 3 International comparison of entrepreneurial activity: GEM 2001 shows the same information for the 29 countries participating in GEM Australia was not alone in experiencing a significant drop in TEA scores between 2001 and Of the 28 countries that participated in GEM in both 2001 and , 15 had a significant reduction in their national TEA index from 2001 to Only India and Argentina had a statistically significant increase in their TEA scores. Brazil, Israel and Spain had increases that were not statistically significant. To determine the statistical significance of changes in TEA scores, upper and lower limits of confidence intervals are needed, rather than simple mean scores. These figures can only be provided by the GEM global team, who have the entire data set for all participating countries. Their figures for 2001 participants have been adjusted due to revised weightings to reflect latest census information. Thus some figures for 2001 are different from those originally published. For example, Australia s 2001 TEA score was revised down from 16.2 percent to 15.5 percent. Figure 4 illustrates the changes for all countries whose TEA index decreased significantly. In absolute terms, Australia s TEA index decreased by 6.8 percentage points (15.5 minus 8.7). This was the second largest decrease (after Mexico at 8.3) and reflected the fact that Australia had one of the highest Figure 4 Countries experiencing significant decrease in TEA index from 2001 to Absolute decrease Percentage of population participating MX NZ AU IE HU IT PL ZA FI DE UK FR RU SE JP Countries (2-character international code) 2 Printed copies of last year s Yellow Pages GEM Australia, 2001 report showed Australia as ranking second on Total Entrepreneurial Activity. This was because the New Zealand score was adjusted after the Australian report went to press. The PDF version of the Australian report shows the revised scores. 3 One country, Portugal, of the twenty-nine that participated in GEM in 2001, did not remain in the project in

16 TEA index values in Expressed as a proportion of its 2001 TEA index, Australia s 2002 TEA index dropped by 44 percent, which was only the fifth largest decrease. Japan (65 percent), Russia (64 percent), France (57 percent) and Poland (56 percent) all experienced proportionally larger decreases. In the case of Japan, this was from an already low base and dropped Japan to the lowest rank on TEA index. There can be little doubt that Australia s decrease in entrepreneurial activity reflects a global phenomenon. Possible explanations for both the global phenomenon, and the fact that Australia was more strongly affected than most countries, will be examined in the next chapter. WHO AND WHERE ARE OUR ENTREPRENEURS? In this climate of reduced entrepreneurial activity, what sort of people are still starting businesses and keeping young businesses alive? Where in Australia are they located? Female Entrepreneurs As was the case in previous years of GEM in Australia, women were less likely than men to be involved in entrepreneurial activity. However, the gap in male and female participation rates varied between different forms of entrepreneurial activity as Figure 5 illustrates. Figure 5 Entrepreneurial activity participation: male-female comparison Percentage participating TEA Start-ups Male New firms Female Opportunity Type of activity Necessity Business angel For all except Business Angel activity, the differences in rates of participation between males and females were statistically significant. In every one of the GEM 2002 participant countries, the female participation rate in entrepreneurial activity was below the male participation rate. In most countries, female participation as a percentage of male participation was in the percent range. The mean was 53 percent. Women were least active relative to males in Japan (21 percent), Israel (28 percent) and Singapore (29 percent) and most active in Thailand (95 percent) and China (80 percent). In Thailand, female participation in start-ups (13.1 percent) actually exceeded male participation (10.1 percent), the only country in which this was the case. For all GEM countries, the mean value of female participation in start-ups as a proportion of male participation was 52 percent. In both France and China, female participation in new firms exceeded male participation. France showed a similar proportion in 2001, but the significance of this apparent pattern is undermined by the very low overall participation in entrepreneurial activity in France. In China, a new participant to the GEM project in 2002, the female participation rate in new firms was 8.1 percent compared with a male participation rate of 6.8 percent. For all GEM countries, the mean value of female participation in new firms as a proportion of male participation was 55 percent. Age range In 2000 and 2001, the peak of entrepreneurial activity participation in Australia occurred in the years age range, closely followed by the years age range. In 2002, the peak shifted to the years age range as illustrated by Figure 6. This appears to be against the general GEM trend. We do not have figures on participation by age range for all GEM countries, but we do have a comparison of start-up participation between the age range and the age range. Only in six countries (Korea, Japan, Netherlands, Australia, Iceland and Belgium) were the age range more active than the 18-34s by 25 percent or more. By contrast, in 14 countries 18-34s were more active than 35-54s by 25 percent or more. The balance between opportunity-driven and necessity-driven entrepreneurial activity also varied 9

17 10 Figure 6 Entrepreneurial activity by age range Percentage of population participating across the age ranges as illustrated by Figure 7. A much higher proportion of those entrepreneurially active in the age range were motivated by necessity rather than opportunity. By contrast, none of the age range were motivated by necessity. Participation in start-ups and new firms varied by age range also as illustrated by Figure 8. Start-up participation was highest in the age range and lowest in the age range, with a dip in the age range. New firm participation followed a more stable pattern, peaking in the middle age ranges. It would be inappropriate to attach too much Figure 7 Opportunity and necessity entrepreneurship by age range Percentage of adults participating Male Female Overall Opportunity Age range Necessity Age range significance to these differences. With weightings applied to adjust for over- or under-representation by gender, age range and location, the numbers involved are small as Table 2 shows. Table 2 Respondents by entrepreneurial activity type Type of activity No. of respondents Any type 235 Opportunity-driven activity 181 Necessity-driven activity 41 Start-up participants 102 New firm participants Location The change in sampling strategy to ensure that a minimum of 500 respondents were surveyed in each state, allowed more accurate analysis of differences in entrepreneurial activity levels between states. Indications of significant differences between states had previously been found in an analysis of data from the GEM Australia, 2000 study (Hindle and Rushworth, 2001a). That study found that participation in start-ups varied from a low of four percent in rural South Australia to a high of just over 16 percent in Brisbane. Analysis of the GEM 2002 data for Australia confirmed the existence of regional differences. Analysis was done at the level of both state and the same 11 geographic regions as were used in the study Figure 8 Start-ups and new firms by age range Percentage gof adults participating p p g Start-ups New firms Age range 4 Some respondents were involved in both start-ups and new firms

18 described in Hindle and Rushworth (2001a). Although the 2002 study involved a larger survey population (3,378 compared with 2,078), the lower level of entrepreneurial activity in 2002 meant there were fewer respondents participating in entrepreneurial activity to be subjected to more detailed analysis. In compensation, the strategy of taking equal samples from each state means that the differences between states are more likely to be significant. The number of respondents involved in entrepreneurial activity in each state and region are shown in Table 3. Once again, weightings have been applied to adjust for over- or under-representation by gender, age range and location. Table 3 Participants in entrepreneurial activity by geographic region State Metro Country New South Wales Victoria Queensland South Australia 13 6 Western Australia Tasmania n/a 4 Total Figure 9 Entrepreneurial activity by gender within state Male Female Overall 16 Percentage of population participating Grand total NSW VIC QLD SA WA TAS Figure 9 illustrates the pattern of entrepreneurial activity by state, showing male and female participation rates together with the overall participation rate for the state. The most entrepreneurially active states overall were Queensland and Western Australia and the least active was Tasmania. Females were most active in Queensland and least active in New South Wales. Intuitively one might have expected that the highest population states, having a larger market closer to hand, would have higher rates of entrepreneurial activity, but such was not the case. New South Wales was only marginally more active than Tasmania. When analysis was extended to regions that distinguish between metropolitan and rural respondents for all states except Tasmania, an interesting picture emerged. Figure 10 illustrates the participation rates (percentage of the population participating as opposed to actual number of participants) by region. For New South Wales, Victoria and South Australia, there was little difference in entrepreneurial activity between metropolitan and country areas, but for Queensland and Western Australia, entrepreneurial activity was markedly higher in the country areas. For Australia as a whole, there was no significant difference in entrepreneurial activity between metropolitan and rural areas. By state, opportunity-driven entrepreneurial activity was highest in Queensland, and by region, in rural Western Australia and rural Queensland. In both these Figure 10 Entrepreneurial activity by gender within region Percentage of population participating Sydney Rest of NSW Male Female Overall Melbourne Rest of VIC Brisbane Rest of QLD Adelaide Rest of SA Perth Rest of WA Tasmania 11

19 Figure 11 Opportunity and Necessity Entrepreneurship by region Percentage of population participating Sydney Rest of NSW Melbourne Opportunity Rest of VIC Brisbane Rest of QLD Adelaide Necessity Rest of SA Perth Rest of WA Tasmania Figure 12 Start-up and new firm participation by region Percentage of population participating Sydney Rest of NSW Melbourne Start-ups Rest of VIC Brisbane Rest of QLD Adelaide Rest of SA New firms Perth Rest of WA Tasmania states, entrepreneurial activity was markedly higher in the rural than in the metropolitan regions (see Figure 11). Necessity-driven entrepreneurial activity, as a proportion of opportunity driven entrepreneurial activity, was highest in Perth, in contrast to the high level of opportunity-driven entrepreneurial activity in rural Western Australia. Although for Australia as a whole, the participation rate in new firms was substantially higher than the participation rate in start-ups, the relationship between these two types of activity differed between states and regions as shown in Figure 12. In rural Victoria, Brisbane and Adelaide, start-up participation exceeded new firm participation. New firm participation was highest in rural Western Australia, where start-up participation was also lowest. Start-up participation was highest in rural Queensland, where it was equal to new firm participation. Because the number of individuals involved in each activity within each region is still small, even with the larger survey sample taken this year, these variations cannot be demonstrated to be statistically significant. But they provide potential indicators of future trends. For example, will rural Western Australia experience a sharp drop in entrepreneurial activity in future years because of its low start-up participation rate in 2002? WHAT TYPES OF BUSINESSES ARE THEY CREATING? GEM classifies businesses by four major types based on the ISIC (International Standard Industry Codes). These are Extractive (e.g. agriculture or mining), Transforming (e.g. manufacturing), Business Services (providing services to businesses) and Consumer-oriented (providing goods or services to consumers). Figure 13 Entrepreneurial activity by business type Percentage of businesses Extractive Business services Transforming Consumer oriented Established firms Young firms Start-ups Business stage 12

20 Figure 13 illustrates the pattern for Australia. A shift is apparent in the newer businesses away from manufacturing towards business services and, to a lesser extent, consumer-oriented businesses. Forty percent of start-ups and 40 percent of new firms believed they were operating in mature markets with many customers. Only 10 percent of start-ups and 11 percent of new firms believed they were entering new markets with few competitors. Similarly, 56 percent of start-ups and 68 percent of new firms were selling well-established products or services. Only six percent of new firms were selling products they judged would be unfamiliar to many customers, but start-ups were more inclined to venture into new products and services with 17 percent of start-up participants judging that many customers would find their products unfamiliar. A sizable minority (21 percent) of start-ups and of new firms (18 percent) based their products on technology only available within the last 12 months. The majority of both start-up participants (55 percent) and new firm participants (53 percent) did not expect to be getting any sales from outside Australia. Only eight percent of start-ups and 3.5 percent of new firms expected more than 50 percent of their sales to come from exports. The overall performance of Australia relative to other GEM 2002 participant countries in terms of entrepreneurial activity is summarised in Table 4, Australia s Entrepreneurial Activity Scorecard. THE ENTREPRENEURIAL SUPPORT ENVIRONMENT IN AUSTRALIA EVIDENCE FROM THE GEM EXPERTS SURVEY Each of the experts interviewed for GEM are asked to complete a detailed survey assessing the effectiveness of each of the entrepreneurial framework conditions in their country. As well as the nine entrepreneurial framework conditions, they are asked to assess Australia s strength in terms of existence of good business opportunities, entrepreneurial skills, entrepreneurial motivation, protection of intellectual property (IP) and for the first time in 2002 support for female entrepreneurs. The surveys are also distributed to expert interviewees from previous years. In total 48 Australians completed the survey this year. Three participant countries, Italy, Poland and Russia, did not submit expert surveys. Considering that, in the main, different individuals are surveyed each year, there has been surprising consistency in overall results. Because of this, rather than presenting comparison charts for each survey section, only key messages are drawn out. There was little change from previous GEM reports for the following frameworks: government policy, government programs, R&D transfer, commercial and professional infrastructure, market openness, access to physical infrastructure, entrepreneurial capacity or protection of IP. Several categories showed some improvement: financial support, education and training, perception of opportunities and entrepreneurial motivation. With the last of these, it must be noted that Australia was and still is well behind the leading countries (principally USA) in this category. For the purposes of comparison, some categories are summarised with a single indicator and others subdivided into two indicators. Categories in which Australia ranked highly relative to other GEM countries were: protection of IP (ranked top of 34 countries), education (in schools), importance of risk capital, market openness (low barriers to entry) and existence of good opportunities. 13

21 Table 4 Australia s Entrepreneurial Activity Scorecard Australia All GEM countries This year Last year ITEM Rank Score Rank Score Mean High Score Low Score (of 37) (of 29) (Country*) (Country*) Entrepreneurial Activity Indicators (Source: Adult pop n survey; Scale: Percent of pop n participating) Start-ups overall % 4 9.0% 4.7% 11.6% (TH) 0.9% (JP) New businesses (< 42 months old) % 1 7.2% 3.7% 9.3% (KR) 0.8% (PL) Total Entrepreneurial Activity % % 8.0% 18.9% (TH) 1.8% (JP) TEA Opportunity % % 5.6% 15.3% (TH) 1.2% (JP) TEA Necessity % 8 3.2% 1.9% 7.5% (BR) 0.1% (FR) TEA Percent Opportunity % % 72.1% 90.2% (DK) 42.7% (BR) TEA Percent Necessity % % 21.7% 56.5% (CN) 2.9% (FR) Entrepreneurial Activity and Gender Male participation rate in start-ups % % 5.9% 14.5% (CL) 1.4% (JP) Female participation rate in start-ups % 6 5.9% 3.4% 13.1% (TH) 0.3% (JP) Male participation rate in new firms 9 6.8% 2 9.9% 4.8% 14.2% (KR) 0.8% (FR) Female participation rate in new firms 9 3.6% 2 4.3% 2.6% 8.1% (CN) 0.3% (JP/BE) TEA Male % % 10.7% 21.9% (CN) 3.0% (JP) TEA Female % % 5.7% 18.5% (TH) 0.6% (JP) Start-ups Female/Male ratio 17 48% 13 53% 52% 130% (TH) 19% (IL) New businesses Female/Male ratio 17 53% 15 43% 55% 119% (CN) 16% (BE) TEA Female/Male ratio 24 48% 15 48% 53% 95% (TH) 21% (JP) Risk Capital Investment Indicators Median Pct. of pop n business angels last 3 years 27= 1.8% 6= 3.8% 2.9% 7.5% (IS) 0.6% (PL+) Classic Venture Capital (pct of GDP) 16 of % 16 of % 0.099% 0.968% (KR) 0.013% (CN) Number of Classic VC investee firms 19 of of ,851 (KR) 2 (SI) Classic VC per investee firm (US$m) 9 of of (US) (IS) Informal Venture Capital (pct of GDP) 14 of of % 1.35% 6.36% (KR) 0.12% (FI) Ratio: Informal: Formal Venture Capital 12 of of (NZ) 0.4 (IL) * See References for list country codes. + indicates more than one country with this score 14

22 Categories in which Australia ranked poorly were: education (post-school), motivation to act on opportunities, government policy support, R&D transfer effectiveness, and market openness (volatility of markets). In the past two years of GEM, the questions in the cultural norms category failed to yield useful insights and did not show internal consistency that is they appeared to be measuring diverse characteristics rather than a related set, which is what was intended. In 2002, they were replaced by a set of questions assessing entrepreneurial orientation, based on wellestablished research (Lumpkin and Dess 1996). The new questions and results are shown in Figure 14. In this chart and also Figures 15 and 16, the responses have been converted from a scale of 1 to 5 to a scale of -2 to +2, so that a score of 3 (neither true nor false) is represented as zero. Australia ranked 11th (out of 34) on this revised category, with a mean score of This compared with sixth and seventh (out of 25) last year (the category was then sub-divided into cultural value of independence and tolerance of uncertainty ). What is striking about scores with the revised questions is the domination of the USA, leading every individual question and leading the aggregate score by almost half a point above second-ranked Taiwan. The GEM 2002 expert survey included a section on support for female entrepreneurs. The results are shown in Figure 15. Australia scored fairly well, ranking ninth overall. On availability of social services to support working mothers, despite being one of the few developed countries where paid maternity leave is not required by legislation, Australia s score was above the median, though well behind the leading group which was dominated by the Scandinavian countries. Asian countries (Hong Kong, Thailand, China and Taiwan) led the field on social legitimacy of female entrepreneurship. Australia ranked surprisingly highly here, considering that expert opinion has been, and remains (see Figure 16), that entrepreneurship does not have a high degree of social acceptability as a career option. The lowest score for Australia, both in absolute terms and in ranking, was on exposure of Australian women to as many good business opportunities as men. Finally, expert opinion was unequivocal that Australian women have the skills and motivation to start a business. Unfortunately, as will be seen later, Australian women themselves appear to underestimate their skill level. Each category of the expert survey contains five or six questions and a mean score and ranking is available for each participating country. Examining individual questions for examples of strong or weak performance by Australia, or significant improvement or deterioration from the previous year, yielded some interesting messages, illustrated by Figure 16. Question one shows that Australian experts still think the taxation system is a burden for new and growing businesses. Figure 14 Cultural and social norms: international comparison of expert opinion Response scale Australia Median Max Min US DK US SE US Q1 Q2 Q3 Q4 Q5 FR US JP US DK In my country: Q1. The national culture is highly supportive of individual success achieved through own personal efforts. Q2. The national culture emphasises self-sufficiency, autonomy, and personal initiative. Q3. The national culture encourages entrepreneurial risktaking. Q4. The national culture encourages creativity and innovation. Q5. The national culture emphasises the responsibility that the individual (rather than the collective) has in managing her own life. 15

23 Figure 15 Support for female entrepreneurs: international comparison of expert opinion Response scale Response scale Australia Median Max Min DK CH HK BE Q1 Q2 Q3 Q4 Q5 Question two shows an encouraging improvement in perception of schools ability to encourage entrepreneurial characteristics in students. Question three shows approval for Australia s management of competition policy and regulation. Question four shows the very encouraging view that Australia has good opportunities for high growth businesses. This score was also an improvement on last year. Question five shows Australia s performance on a question it ranked absolute last on in 2001 the issue of the level of respect accorded by society to successful entrepreneurs. Although a substantial improvement is TH Q1 Q2 Q3 Q4 Q5 JP Figure 16 Comparison of selected questions from the GEM expert survey HK Australia Median Max Min HK BR NZ FR CA AR US IL JP NZ US KR NO In my country: Q1. There are sufficient social services available so that women can continue to work even after they start a family. Q2. Starting a new business is a socially acceptable career option for women. Q3. Women are encouraged to become self-employed or start a new business. Q4. Women get exposed to as many good opportunities as men to start a new business. Q5. Women have the necessary skills and motivation to start a new business. apparent, Australia is well below the median and way behind leaders Taiwan, Israel, Canada and Hong Kong (there was no score provided for the USA for this question). ACCESS TO EARLY STAGE FINANCE A key element of financial support for new and growing firms is access to early stage capital. Business angels are an important source of such capital. The business angel participation rate fell from 3.8 percent in 2001 to only 1.8 percent in The mean investment per angel fell from AU$63,000 to AU$43,000. In my country: Q1. The amount of taxes is NOT a burden for new and growing businesses. Q2. Teaching in primary and secondary education encourages creativity, self-sufficiency, and personal initiative. Q3. Competition policy and regulation is effective and well enforced. Q4. There are plenty of good opportunities to create truly high growth businesses. Q5. Successful entrepreneurs have a high level of status and respect. 16

24 Table 5 summarises angel activity over the three years of GEM in Australia. Table 5 Angel activity indicators 2000 to 2002 Indicator Participation rate 2.6% 3.8% 1.8% Rank 11 of 21 6 of of 37 Mean investment per angel (AU$) 56,000 63,000 43,000 Median investment per angel (AU$) 10,000 25,000 25,000 There has been no consistent pattern of demographics of business angels over the three years of GEM in Australia. Of the 51 self-identified business angels in 2002, 28 were male and 23 female. Ten were in the age range, 26 in the age range and 13 aged 45 or above (two were not prepared to disclose their age). A consistent pattern that did emerge, however, was that female angels invested smaller amounts than male angels did as Figure 17 illustrates (investments falling on the boundary are included in the lower category). The 2001 study showed the same pattern. Business angels in 2002 invested even closer to home than in Of the 43 who disclosed their relationship with their investee, 27 had invested in the business of a relative. Only three did not have a prior acquaintance with their investee. Unlike the 2001 sample, these were relatively small investors, two in the Figure 17 Angel funding by gender Number of angels Male Female Up to Investment range $10,001 to $50,000 range and one in the up to $10,000 range. The two largest investments were in businesses owned by a work colleague and by a friend/neighbour. CLASSIC VENTURE CAPITAL The March 2002 issue of the Australian Venture Capital Journal reported another record year of investment activity for Australia. Investments by Australian and New Zealand venture capital firms during calendar year 2001 totalled AU$1.65 billion, $274 million above the total for The number of companies receiving capital, however, has plateaued since December companies received capital in 2001 compared with 522 in An international comparison of venture capital activity has been compiled by Bill Bygrave for the GEM Global Executive Report (Reynolds et al. 2002), to focus on classic venture capital, which comprises seed, startup, early and expansion stage companies. Figures for Australia were obtained from the Australian Venture Capital Journal through its alliance with Howard Partners. They exclude investments by New Zealand firms and investments made by Australian firms in companies outside Australia, for consistency of comparison across GEM participant countries. Because venture capital activity is, in most countries, summarised only at the end of a financial year, there is a lag in reporting data. Therefore figures quoted are for the year Classic venture capital investments in Australia in 2001 amounted to just over US$350 million or around AU$700 million. As a percentage of GDP, this amounted to just under 0.1 percent, which ranked Australia 16th of the 30 countries for which this information was available. This compared with 0.12 percent of GDP in 2000, which ranked Australia 16th of 24 countries. In 2001, 154 Australian companies received classic venture capital investments at an average amount of US$2.3 million per company. This was half the number of investments in 2000, but the average amount per company was higher than the 2000 average of US$1.45 million per company. There was a general reduction in venture capital activity worldwide from 2000 to 2001, particularly noticeable in the USA (fell from 1.02 percent of GDP 17

25 in 2000 to percent of GDP in 2001) and Israel (fell from 1.22 percent the highest percentage in 2000 to 0.74 percent). The number of companies receiving classic venture capital also fell from just under 20,000 companies worldwide to 18,230 and the median amount invested also fell slightly from US$1,310 to US$1,270. The new leader in venture capital investment as a percentage of GDP was South Korea, which topped the ranks in terms of investment as a percentage of GDP and number of companies receiving investment (see Table 4). South Korea accounted for more than 26 percent of investee companies worldwide in 2001, with USA in second place with almost 21 percent. In terms of total money invested, however, USA still dominated with over US$40 billion in investments in classic venture capital alone 69 percent of the worldwide total investment and 10 times South Korea s total. START-UP FUNDING In a climate where business angels were apparently harder than ever to find, and the average investment amount per investee from venture capital firms was rising, it is worth looking at how start-up participants surveyed for GEM 2002 expected to fund their new ventures. Start-up participants were asked three questions about sources of funding: how much money in total they needed; how much they expected to invest of their own funds; and how much they expected to receive from family members. Eighty-one start-up participants were prepared to offer estimates. Funding requirements varied from a modest AU$1,000 to a more ambitious AU$10 million. The range of requirements is illustrated in Figure 18. In six cases, the family member amount plus founders own funds exceeded the total capital required, indicating that the respondent had not understood the question. These cases were discarded from further analysis. Of the 75 remaining start-up participants, 43 (57 percent) expected to provide the full amount of capital from their own funds. Only nine start-up participants did not expect to contribute any of their own Figure 18 Start-up funding requirements Number of start-ups in range Up to >500 Total funds required (AU$1,000s) funds. Given that business angels identified in the GEM 2002 survey overwhelmingly invested in the businesses of relatives, surprisingly few start-up participants expected to source funding from a family member. Only three indicated they expected to receive funding from a family member. In all three cases, the family member was expected to invest more than the owner (in one case 100 percent). Taken as a whole, start-up participants expected to provide 34 percent of funds themselves and receive less than one percent from other family members, leaving a shortfall of 65 percent (amounting to an aggregate of $18 million) to be obtained from other sources. The overall effectiveness of Australia s support environment for entrepreneurial activity, relative to other GEM 2002 participant countries is summarised in Table 6, Australia s Entrepreneurial Effectiveness Scorecard. ENTREPRENEURIAL ACTIVITY AND ECONOMIC GROWTH THE GLOBAL PATTERN The 2001 GEM study uncovered the two distinct forms of entrepreneurial activity: opportunity-driven and necessity-driven. Of the two, only necessity-driven entrepreneurial activity showed a clear relationship with GDP growth. This proved to be the case again in

26 Table 6 Australia s Entrepreneurial Effectiveness Scorecard Australia All GEM countries ITEM Rank Score Median High Score Low Score (Country*) (Country*) Entrepreneurship Environment Ratings (Source: Key informant surveys; Scale: 1=Low to 5=High) [Note: available for only 34 of the participant countries] Availability of capital (US) 1.50 (AR) Importance of risk capital (US) 1.72 (HU) Government policy support (CA) 1.50 (AR) Low regulation and taxation burden (HK) 1.36 (AR) Government program effectiveness (IE) 1.61 (AR) Education and training: schools (CA) 1.34 (JP) Education and training: post-school (US) 2.00 (CN) R&D Transfer effectiveness (CN) 1.88 (AR) Commercial and professional infrastructure (CA) 2.00 (JP) Rapidity of change in markets (TW) 1.83 (CL) Low barriers to market entry (CA) 2.04 (HR) Ease of access to physical infrastructure (CA) 3.00 (HU) Entrepreneurial culture (US) 1.88 (SE) Perception of business opportunities (US) 2.50 (AR) Capacity to act on business opportunities (HK) 1.68 (JP) Motivation to act on business opportunities (TW) 2.63 (NO) Protection of intellectual property (AU) 2.00 (AR) Support for female entrepreneurs (HK) 2.25 (JP) Entrepreneurship Expert Attitude Ratings (Source: Key informant surveys; Rating: % answering Yes ) Expect to start business in next 3 years 16 51% 47% 77% (MX) 20% (NL) Have closed down a business in last year 5 23% 12% 26% (SG) 2% (FI) Know someone who started a business 24 94% 95% 100% (++) 14% (CA) Perceive good business opportunities now 5 92% 81% 98% (NO) 29% (CA) Have skills to start a business 1= 100% 91% 100% (++) 50% (CA) Fear of failure is NOT a deterrent 2 98% 86% 100% (US) 62% (TW) Entrepreneurship Population Attitude Ratings (Source: adult pop n survey; Rating: % answering Yes ) Expect to start business in next 3 years 22 11% 12% 43% (CL) 2% (JP) Have closed down a business in last year % 3% 9.8% (AR) 0.7% (FR) Know someone who started a business 23 35% 39% 59% (CN) 13% (JP) Perceive good business opportunities now 15 34% 30% 51% (++) 5% (JP) Have skills to start a business 9 51% 42% 67% (AR) 11% (JP) Fear of failure is NOT a deterrent 22 68% 69% 81% (JP) 46% (TH) * See References for list of country codes. ++ indicates several countries with this score 19

27 The correlation between participation rates in necessity-driven entrepreneurial activity and the projected GDP growth rate was evident even with all countries included in the analysis. With Argentina excluded (on the grounds that its economy is undergoing such upheaval that projected growth rates cannot be considered reliable), the correlation was strong (0.598) and highly significant (0.000). That is, the higher a country s participation rate in necessity-driven entrepreneurial activity, the higher its rate of GDP growth is expected to be. This relationship also held when only member countries of the OECD (Organisation for Economic Cooperation and Development) countries were included in analysis. The correlation between opportunity-driven entrepreneurial activity and projected GDP growth was not significant; whether all countries, all except Argentina or OECD countries only were included in the analysis. Both start-up and new firm participation rates were also positively related to the projected GDP growth rate, though neither as strongly as the overall necessity entrepreneurship participation rate. GROWTH OF GEM AUSTRALIA SURVEYED BUSINESSES Each respondent identified as a start-up participant was asked to estimate how many people their business would employ, apart from its owners, in five years time. Table 7 shows the estimates in four categories, together with the most recent Australian Bureau of Statistics (ABS) breakdown of total Australian businesses in each category (ABS 2001, update due October 2002). Table 7 Start-up employment expectations: 2002 vs 2001 Start-ups employment expectations in five years No. of GEM 2002 GEM 2001 All employees (n=99) (n=124) Businesses (ABS 2001) Non-employing 30.9% 25.6% 49% 1 to % 35.7% 33% 5 to % 25.6% 15% 20 to % 12.4% 3% % 0.8% 0.3% Table 8 New Firm employment expectations: 2002 vs 2001 Percentage of GEM All Firm new firms (ABS 2001) Size Size Now Size in 5 years Nonemploying 34.7% 35.3% 23.8% 17.9% 49% 1 to % 45.7% 31.4% 34.0% 33% 5 to % 15.5% 29.8% 29.2% 15% 20 to % 2.6% 8.8% 12.3% 3% % 0.5% 4.7% 0.3% Out of business 5.7% 4.7% A decrease in employment growth expectations from 2001 to 2002 was apparent. Only two percent of startup participants surveyed in 2002 expected to be employing 20 or more people, compared with 13.2 percent of start-up participants in A pattern of reduced growth expectations was also apparent from new firms businesses established between January 1999 and March 2002, as Table 8 shows. In 2001, 17 percent of businesses expected to employ 20 or more people in five years time. In 2002, the equivalent figure was just over nine percent. Twenty-three percent of new firms in 2002 expected to be non-employing in five years time, compared with 18 percent of new firms in Of nonemploying new firms, almost 70 percent expected to stay that way, compared with only 50 percent in To extrapolate these job creation expectations would give a vast exaggeration of the job creation potential of new ventures, since it cannot take into account the extent to which new jobs created are at the expense of established businesses and, indeed, of other new venture participants. However, the estimates of number of jobs created per start-up or new firm provide a useful comparison from year to year. Overall, the 99 GEM 2002 start-up participants who were prepared to offer estimates, expected to generate 955 new jobs, an average of 9.6 jobs per start-up. This compares well with an estimated 1,003 new jobs 8.1 per start-up from 124 GEM 2001 start-ups but less well with an estimated 2,163 new jobs from 95 GEM 2000 start-ups 22.5 per start-up (Hindle and Rushworth 2001b: 20-21). 20

28 However, if one individual who expected to create 1,000 new jobs within 5 years (overall impact is reduced by weightings) was excluded from the calculation, then the estimated jobs generated by start-ups surveyed in 2002 fell to 398 or 4.1 jobs per start-up. The 111 GEM 2002 new firm participants who provided estimates of employee numbers in five year s time expected to create net 328 new jobs just under three jobs per firm. This compares with an estimated 1,019 from 106 GEM 2001 new firm participants who provided estimates 9.6 jobs per firm (Hindle and Rushworth 2001b: 21). The calculation was not performed for GEM 2000 participants. Indicators of Australia s growth competitiveness relative to other GEM 2002 participant countries are summarised in Table 9, Australia s Growth Scorecard. Table 9 Australia s Entrepreneurial Growth Scorecard Australia All GEM countries ITEM Rank Value High Score Low Score (of 37) (Country*) (Country*) Economic growth indicators (IMF 2002) GDP Growth % 7.30% (CN) (AR) GDP Growth 2002 (projected) % 7.00% (CN) % (AR) GDP Growth 2003 (projected) % 7.40% (CN) 0.82% (JP) Global Competitiveness Report indices (WEF 2002) Overall index (FI) 3.70 (RU) Technology index (US) 3.54 (IN) Public institutions index (FI) 3.68 (RU) Macroeconomic environment index (SG) 3.55 (IE) Innovation index (CA) 2.07 (CN) ICT index (IS) 3.43 (IN) Innovative capacity index (US) 16.8 (MX) World Competitivenes Yearbook indices (WCY 2002) Overall competitiveness (US) 26.0 (AR) Economic performance (US) 28.2 (AR) Government efficiency (SG) 20.2 (AR) Business efficiency (US) 24.2 (AR) Infrastructure (FI) 30.1 (PL) Currency competitiveness (Big Mac index) 28-35% +66% (IS) -68% (AR) ( Social progress indicators Environmental Sustainability index (ESI 2002) 10 Score: (FI) 35.9 (KR) (34 countries) (of 34) Rank 16 Rank 1 Rank 135 Human Development Report ranking (HDR 2002) 5 (GEM) 5 (World) 1 (NO) 124 (IN) Income disparity (WCY 2002) Income: highest 20% : lowest 20% (JP) 24.2 (BR) Rank 1 = smallest disparity * See References for list country codes. 21

29 Part Two Explanations WHY DID ENTREPRENEURIAL ACTIVITY DECLINE SO MARKEDLY? The most salient feature of Part One of this report, is that there has been a substantial and statistically significant fall in entrepreneurial activity in Australia and the majority of other countries participating in both the 2001 and 2002 GEM studies. This is the dominant observation that demands an explanation. DISTINGUISHING BETWEEN START-UPS AND NEW FIRMS The average Total Entrepreneurial Activity (TEA) participation rate across all GEM countries decreased in 2002 from 9.94 to 7.99 percent a drop of 1.95 percentage points. But TEA is a combination of two types of entrepreneurial activity: start-ups many of which are still only at the intention stage and new firms businesses established since The average start-up participation rate across all the GEM countries that participated in both 2001 and 2002 fell from 6.44 to 4.66 percent (1.78 percentage points). The average new firm participation rate actually rose slightly from 3.50 to 3.70 percent (0.21 percentage points). In short, what was observed in 2002 was a dramatic fall in start-up participation, while new firm participation remained fairly stable. The drop in start-up participation rates alongside stable new firm participation rates was consistent across GEM participant countries. Of the 24 countries that experienced an absolute decrease in TEA participation rates from 2001 to 2002, in 13 cases the fall in start-up participation contributed more than 75 percent of the total drop. In only one case did the decline in new firm participation account for more than 75 percent of the drop in TEA participation. In five cases start-up participation declined while new firm participation rose. There was no case of a country experiencing a decrease in TEA participation without a decrease in start-up participation. Thus, in seeking explanations for the overall decline in TEA participation rates, we are really seeking an explanation for the decline in start-up participation rates. THE NINE-ELEVEN EFFECT When a significant change in behaviour at an international level is observed, it is natural to look for a correspondingly significant international event that might have triggered the change in behaviour. Between the 2001 and 2002 adult population surveys, there is an obvious candidate for such an event the terrorist attack on America on September 11, 2001, now universally known as nine-eleven. How far can we legitimately go in inferring that nine-eleven is directly or indirectly responsible for the marked decline in national and global entrepreneurial activity? The heart of new venturing is confident forecasting. As Keynes wrote: The state of confidence, as they term it, is a matter to which practical men always pay the closest and most anxious attention. But economists have not analysed it carefully and have been content, as a rule, to discuss it in general terms....there is, however, not much to be said about the state of confidence a priori. Our conclusions must mainly depend upon the actual observation and business psychology. (Keynes 1936/1977: ). So, there can be no hope of any statistically rigorous testing of the hypothesis that the confidence shattering impacts of nine-eleven were directly responsible for the statistically significant fall in the level of entrepreneurial activity in so many GEM countries. But there is equally no denying the temporal strength of the observed association, or the absence of any other direct impact on economic confidence that occurred on a comparable scale. In his famous analysis of long-term expectations, presented in chapter 12 of The General Theory of Employment, Interest and Money (Keynes 1936/1977: 162), Keynes wrote that enterprise which depends on hopes stretching into the future can be disproportionately affected by adverse events. It is not unreasonable to argue that the significant decline in TEA scores recorded in GEM 2002 provide substantial 22

30 support for Keynes propositions about the vulnerability of entrepreneurial activity. In Australia s case, there are no grounds for unwarranted alarmism about the effects of the particular event known as nine-eleven. But there is legitimate cause for concern about the general susceptibility of Australia s annual start-up participation to negative sentiment. Subsequent sections of this report will provide evidence to demonstrate that the root cause of a volatile start-up rate lies in the strength of a nation s entrepreneurial culture. The stronger the entrepreneurial culture, the less likely it is that business start-up activity will be disproportionately affected by negative sentiment, however generated. GLOBAL ECONOMIC ACTIVITY A slow down in the global economy in 2001 has been followed by a partial recovery, but the pace of recovery has been slower than initially hoped and the International Monetary Fund (IMF) recently revised GDP growth projections for 2003 downwards from the estimates published in April this year. According to the IMF, the recovery is still expected to continue, but global growth in the second half of 2002 and in 2003 will be weaker than earlier expected and the risks to the outlook are primarily on the downside. (IMF 2002a: chapter 1, page 1). It is reasonable to suppose that this economic slow down, slower than expected rate of recovery and future uncertainty, especially in the world s stock markets, have led to a decline in business confidence. This could certainly be a contributory factor to the global decline in entrepreneurial activity. WHY DIDN T USA SCORES FALL? An obvious obstacle to the theory that the global decline in entrepreneurial activity was caused by the nine-eleven terrorist attack is that the entrepreneurial activity in the USA the target of the attack did not decline significantly. However, the USA did experience a significant fall in TEA participation from 2000 to 2001 (almost five percentage points). This was attributed in the GEM USA 2001 national report to the fall-out from the dot.com bust and the economic recession (Zacharakis et al. 2002). The GEM USA team expected the decline to continue in the short term, which it has, though not to a statistically significant extent. Our GEM USA colleagues attribute the global fall in entrepreneurial activity to continued economic uncertainty in the face of global economic slowdown and ongoing lack of business confidence, particularly in the technology business sector. This last point is starkly illustrated by the NASDAQ index, which has declined to less than a quarter of its March 2000 value. A further indication that business confidence in the USA declined last year, but has since reached a plateau, is the response given to the adult population survey question: In the next six months there will be good opportunities for starting a business in the area where you live. In 2000, perception of good opportunities in the US adult population stood at 52 percent. In 2001, it dropped to 37 percent. In 2002, it remained steady at 37 percent, unchanged by the events of September 11, AUSTRALIA S ENTREPRENEURIAL ACTIVITY Although Australia experienced the second largest fall in TEA score in absolute terms, in proportional terms Australia s drop was around the average of those countries that experienced a statistically significant drop in their TEA scores. The average proportional decline in TEA score among those countries was 42.3 percent. Australia s score fell by 43.9 percent, scarcely above the average. Australia s drop in TEA activity appears more dramatic because Australia had one of the highest TEA scores in the first place. It is not out of proportion to the effect experienced by other GEM countries. This is not to say there is no cause for concern. Australia s TEA rank did drop relative to other countries. However, many other countries suffered similar declines. What is interesting is to investigate common characteristics of countries experiencing significant TEA score decline, and the differences between those countries and the countries that did not suffer a significant decline. THE DEEPER CAUSE: LACK OF ENTREPRENEURIAL CAPACITY It is the generic phenomenon of confidence loss rather than its particular cause that is the true heart of the matter. So, arguments over the nine-eleven effect may be moot. For instance, America, which may, prima facie, have been expected to show the greatest drop in start-up rates due to nine-eleven, in fact fell very little. But America had already 23

31 undergone a major loss of confidence due to other causes before the terrorist attacks. In 2001, America s Total Entrepreneurial Activity index had already fallen significantly from the previous year due, as previously discussed, to different but no less important confidence-diminishing factors. In America, the terrorist attacks struck when business confidence was already at a long-time low point (this was a feature of financial journalism throughout the USA in early September). Paradoxically, by rallying national resolve, nine-eleven may have helped to strengthen the patriotic determination of America s nascent entrepreneurs, who live in a strong entrepreneurial culture, not to be intimidated. In stark contrast, nine-eleven struck an Australia differing from the USA in two major ways. First, at the time of the attack, business confidence was relatively high in Australia. Second, and more importantly, unlike America, Australia does not have a robust entrepreneurial culture. On the contrary, our entrepreneurial culture is much weaker and genuine entrepreneurial capacity is rarer. Both previous GEM Australia reports have warned against complacency about the relatively high start-up and new firm activity rates of 2000 and 2001 because, we argued, they may superficially mask the widespread lack of genuine entrepreneurial capacity in this country. Last year we wrote: Yet the fact that must be grasped by entrepreneurship policy makers and commentators is that this [high TEA score] provides grounds for reflection as much as celebration. Activity does not equate to success. (Hindle and Rushworth 2001b: 49) And later: What holds us back is a general lack of skills needed for new venturing and a tendency among Australian entrepreneurs to limit their ambition to lifestyle oriented rather than growth oriented businesses. (Hindle and Rushworth 2001b: 49) The weaknesses observed in previous years in the Australian entrepreneurial support environment, remained in Australian expert assessments ranked us 24th out of 34 countries on motivation to act on business opportunities ; 18th on capacity to act on business opportunities ; 24th on post-school education support for entrepreneurship ; 22nd on effectiveness of government programs and 20th on government policy support for new and growing firms. These all point to a lack of entrepreneurial capacity in Australia. In addition to low general levels of entrepreneurial skill and absence of growth orientation, Australia s apparent lack of entrepreneurial capacity is characterised by a third major factor, which featured strongly in GEM Australia, 2000 (Hindle and Rushworth 2000: passim). Put simply: many Australian ventures are characterised more by speculation than calculation. Keynes (1936/1977: 158) used the term enterprise to mean the activity of forecasting the prospective yield of assets over their whole life. He contrasted the entrepreneurial capacity inherent in this concept of enterprise with the mere speculation, which was the activity of forecasting the psychology of the market. Speculative ventures inherently involve a short-term rather than a long-term outlook. The person who starts a business hoping to cash out quickly rather than build long-term value will not initiate a venture until times are good and business confidence is high. Many GEM Australia respondents have ventured the opinion that too much Australian new venturing is characterised by a preference for high-risk but low-cost speculation rather than investment driven by informed risk assessment and longerterm goals (Hindle and Rushworth 2000, 2001b: passim and this report). In the GEM research model (Figure 1 above) and in the classic work on the theory of the growth of the firm (Penrose 1959/1995) and in very recent mathematical modelling of the entrepreneurial process (Hindle 2002a) entrepreneurial capacity plays the crucial role. In the GEM model, entrepreneurial capacity is split into the two general categories of motivation and skills. When it comes to aggregate entrepreneurial capacity, Australia s predominant motivational factors are speculation and lifestyle rather than calculation and growth. When it comes to skills, the consistent argument of three sets of GEM experts over three years is that the general level is low. Accordingly, the essence of this year s significant fall in entrepreneurial activity (as measured by start-up activity) is Australia s aggregate lack of entrepreneurial capacity. If you are a speculator rather than a calculator, if you value the comfort zone of lifestyle higher than 24

32 the challenge of building a growth-oriented enterprise, if your time-horizon is short and if you lack the skill to distinguish and manage long-term opportunity, any severe shock to business confidence will kill your desire to create a new venture. Until this nation, in its policy and practice, seeks to cure the ailment not the symptoms, Australia will be vulnerable to external factors that diminish business confidence. The reason for the fall in entrepreneurial activity is disarmingly simple. At the aggregate level, Australia is an entrepreneurial country in good times and a nonentrepreneurial country when times are perceived to be uncertain. Unfortunately, genuine, deep-seated entrepreneurial spirit and capacity is all about managing uncertainty and cannot be switched on and off. Genuine entrepreneurial capacity is multifaceted. It is the ability to conceive a present opportunity and a vision of its future utility and plan a path to achieving the vision and adapt the plan to circumstance by managing uncertainty and thereby create durable value. To forecast the yield of assets over their whole life, requires people who possess genuine entrepreneurial capacity. There is evidence that entrepreneurial capacity is a key factor in the decline in entrepreneurial activity in other countries too. Consider the expert assessments of entrepreneurial capacity of the other developed countries that experienced significant declines in entrepreneurial activity, illustrated in Table 10. Table 10 Entrepreneurial capacity: expert assessment rankings Country Proportional Skills Motivation decline rank rank in TEA score (of 34) (of 32) Japan 65% France 57% Australia 44% Hungary 42% Sweden 40% Germany 35% South Africa 31% UK 31% The association with low entrepreneurial capacity is marked on at least one, and more often both of the dimensions of entrepreneurial capacity. Expert surveys were not completed in Russia or Poland, countries that had the second and fourth largest proportional declines in entrepreneurial activity. However, it is reasonable to suppose that in the transition from a communist, collectivist society, entrepreneurial skills, if not motivation, might be expected to be low. AUSTRALIA S POTENTIAL This year, as in both previous years, our GEM experts were highly critical of Australia s aggregate levels of entrepreneurial capacity. However, they were overwhelmingly of the opinion that Australia had the raw materials to build world-leading businesses in greater numbers if the barriers of skills and limited horizons could be overcome. But it will not be easy. Significant aspects of the national culture will have to change or significant fluctuations in start-up activity can be expected to be the rule rather than the exception for Australia. SYNTHESIS The global decline in entrepreneurial activity between 2001 and 2002 reflects a decline in entrepreneurial confidence, which had most impact on those countries that are weak in entrepreneurial capacity. The GEM Australia team differs from our colleagues in the USA in our opinion regarding the trigger for that decline. We associate it more closely with nine-eleven rather than with global economic slow down, while acknowledging that other factors may be involved. But, moving on from the trigger event, what is more significant is the difference in reaction between countries. Countries with high entrepreneurial capacity the USA, Canada and Israel (the last of which has much more concrete reasons for a decline in entrepreneurial confidence than does Australia) were not affected to any significant extent. The countries affected most were those that, by their own experts assessments, were weakest in entrepreneurial capacity. 25

33 EXPLANATIONS FOR OBSERVED ENTREPRENEURIAL ACTIVITY IN AUSTRALIA A useful statistical technique for exploring and explaining factors likely to be associated with the entrepreneurial activity observed in Part One, is logistic regression (Wright 1995). The technique has two particularly helpful uses. First, it shows which, if any, of a group of factors have a statistically significant association with the outcome being investigated. Second, the technique provides an odds ratio. This tells us how much of a difference a given factor makes. We used logistic regression to identify the factors that increased the likelihood of an individual being involved in: start-ups; new firms; total opportunitybased entrepreneurial activity and total necessitybased entrepreneurial activity. One factor belief that one has the skills to start a business dominated the explanatory variables. Accordingly, we applied logistic regression techniques seeking to identify characteristics most closely associated with this belief. Finally, we used logistic regression to determine whether there were any significant differences in the factors influencing male and female decisions to be an entrepreneur. The results of the logistic regression analyses are summarised below, with the odds ratio listed in brackets after each factor that was found to be statistically significant. An odds ratio coded (x5) should be read times five, and means five times more likely. An odds ratio less than one indicates that the factor makes a person less likely to achieve the outcome being examined. For instance, an odds ratio coded (x0.4) should be read times zero point four, and means only 40 percent as likely. FACTORS ASSOCIATED WITH START-UP PARTICIPATION For start-ups in general, significant factors that increased the odds of an individual being involved in a start-up were, in order of influence (with odds ratios in brackets): believing one had the skills to start a business (x8.0); knowing someone who had started a business in the last two years (x2.4). The lone statistically significant factor that decreased the odds of an individual being involved in a start-up was: being owner of an established business (x0.3) 5 ; FACTORS ASSOCIATED WITH NEW FIRM PARTICIPATION The same two positive factors prevailed: believing one had the skills to start a business (x4.2); knowing someone who had started a business in the last two years (x2.1). There were no statistically significant factors that decreased the odds of an individual being involved in a new firm. MOTIVATION: OPPORTUNITY VERSUS NECESSITY Factors associated with total opportunity-based entrepreneurial activity The same two positive factors prevailed: believing one had the skills to start a business (x7.3); knowing someone who had started a business in the last two years (x2.1). Two factors significantly decreased the odds of an individual being involved in opportunity based venturing: being an established business owner (x0.2); Being in the middle (as distinct from either upper or lower) income range (x0.5). Factors associated with total necessity-based entrepreneurial activity The two dominant positive factors re-appeared: believing one had the skills to start a business (x4.2); knowing someone who had started a business in the last two years (x2.1). One additional factor significantly decreased the odds of an individual being involved in a necessity-based venture: being female (x0.4); The role of income Logistic regression prefers its predictor variables to be either metric (a continuous measure) or dichotomous (offering a choice between two categories). 5 Observant readers may remember that last year owners of established businesses were found to be more likely to be start-up participants. This was an erroneous conclusion caused by some self-identified owner managers who proved to be start-up participants. In the GEM 2002 data set, established businesses are now clearly distinguised from start-up and new firm participants. 26

34 Accordingly, the influence of income (which is divided into three categories: lowest, middle and highest third) is better observed in cross-tabulation analysis (apportioning totals fully among all categories). Doing this (and testing for statistical significance) confirmed what might have been predicted by common sense. The lower one s income, the more likely one is to be a necessity entrepreneur. The higher one s income the more likely one is to be an opportunity entrepreneur. Specifically, cross-tabulations showed statistically significant differences in the prevalence of both necessity and opportunity entrepreneurship among income categories percent of necessitymotivated entrepreneurs were in the lower income category (middle 34.2 percent; upper 14.8 percent). In contrast, 48.4 percent of opportunity-motivated entrepreneurs were in the upper income bracket (middle 35.5 percent; lower 16.1 percent). FACTORS ASSOCIATED WITH BELIEF ONE HAS THE SKILLS TO START A BUSINESS Age has a rather obvious significance here. Cross tabulation shows that the oldest (55 to 64) and youngest (18 to 24) age categories of the population had less belief in having the skills required to start a business than the three middle age sub-divisions (25 to 34, 35 to 44 and 45 to 54). Three factors increased the likelihood of belief in having the skills required to start a business: being the current owner-manager of an established firm [one older than 42 months] (x4.6); having shut down a business of your own in the last 12 months (x3.7) 6 ; knowing someone who had started a business (x2.4). One s sex was an important factor. Being a woman made one half as likely to believe that one had the skills required to start a business: being female (x0.5). FACTORS INFLUENCING MALE AND FEMALE DECISIONS TO BE AN ENTREPRENEUR When male and female entrepreneurs (start-up or new firm participants) were analysed separately, the pattern of influential factors was remarkably consistent in both direction and magnitude. Whether one is male or female the dominant influences on whether one becomes an entrepreneur remain the same: belief in one s skill to start a new firm; and knowing someone else who has done it. WHAT DID THIS YEAR S EXPERTS EMPHASISE? EVIDENCE FROM EXPERT INTERVIEWS Last year, Australian experts nominated four of the nine framework conditions as key areas of weakness: culture, education, government policy support and financial support. The same four frameworks topped the list of weaknesses again this year. Once again, the Australian culture was the area that came in for the most criticism. Paradoxically, experts also saw culture as Australia s greatest strength, along with Education and some of the components of entrepreneurial capacity the ability to turn creative ability into tangible outcomes. These areas of strength and weakness will be explored in more detail in later chapters. Of the 34 countries that completed expert interviews, 28 nominated the same four areas of key weaknesses as did Australian experts though not necessarily in the same order. Many placed government policy and financial support above culture and education. The majority of countries also nominated culture as their nation s greatest strength. It appears that it is a common situation to find cultural norms both a great asset and a serious weakness. For purposes of international comparison, it is necessary to categorise weakness areas according to the nine entrepreneurial framework conditions. However, we have found it useful to draw out two other categories entrepreneurial skills and 6 The exact wording of the question was: You have, in the past 12 months, shut down, discontinued or quit a business you owned and managed, any form of self-employed, or selling goods orservices to anyone. Do not count a business that was sold. 27

35 entrepreneurial motivation. These are part of the GEM model, interacting with the framework conditions under the heading of entrepreneurial capacity. Entrepreneurial capacity crosses several of the entrepreneurial framework conditions. The skills aspect of it overlaps with education and training, financial support, R&D Transfer and even, to some extent, culture. The motivation aspect is mainly a subset of culture, but also has some overlap with government policy with respect to issues such as tax incentives (or lack thereof). When the weaknesses relating to entrepreneurial capacity are gathered together across the entrepreneurial framework conditions, it emerges as the second most important area of weakness after culture and is therefore worthy of special attention. It is hard to summarise 37 interviews into a few key points. Inevitably, some valuable insights must be omitted. The approach in selecting the points to be highlighted from the expert interviews has been to choose the main themes that emerged. As with last year s report, both strengths and weaknesses of each theme are shown. For conciseness, they are summarised in Table 11. Strengths are denoted by a symbol and weaknesses by a symbol. Paradoxically, our greatest weakness areas were also often our areas of greatest strength. Culture, entrepreneurial capacity and education received the most nominations as areas of strength, though in every case the weaknesses out-numbered the strengths. Another area of strength for Australia that has been consistently evident and remained so this year was lack of barriers to entry. There was and still is a widespread feeling that with appropriate skills and motivation entrepreneurial capacity any Australian could take on any business opportunity. Expert interview comments emphasised Australia s weakness in entrepreneurial capacity, while providing strong opinion and evidence that the basis for building strength in this area was sound. Experience was the factor that was most thought to be lacking. This year, experts were also asked for their suggestions on how Australia s entrepreneurial performance might be improved. Many constructive and practical suggestions were offered. There is not sufficient space in this report to give details of them, but they can be made available to anyone prepared to take on the challenge of building a more entrepreneurial Australia. Most suggestions fell into the frameworks of government policy/programs, entrepreneurial capacity (skills) and education. Education was seen as the main way to change culture and develop entrepreneurial capacity and governments were seen as principal agents of implementing change. The relatively few suggestions relating to cultural change were mostly to do with a more balanced and realistic coverage of entrepreneurship by the media. Cultural change takes time and experts tended to focus on suggestions with more immediate impact. ARE THERE ANY TRENDS OR PATTERNS IN THREE YEARS OF DATA? Readers might be somewhat dismayed by the apparent volatility of entrepreneurial activity and wonder whether it is worth measuring a phenomenon that appears to fluctuate so wildly. We would reassure anyone with such doubts with the following two points: 1. The new firm participation rate has remained much more stable from year to year and we are confident it gives a genuine indication of actual level of business start-up activity as a three-year moving average. 2. The start-up participation rate should be thought of as an indicator of entrepreneurial confidence rather than a measurement of an actual event. When viewed in that light, it provides a useful early warning of potential decline in actual entrepreneurial activity. 28

36 Table 11 Summary of expert assessment of Australia s strengths and weaknesses CULTURE A widespread pioneering, have a go spirit. An early adopter mentality, which makes Australians both good at applying new technology to create business opportunities and a good market for new products. A diverse culture and a global outlook. A persistent negative perception and misunderstanding of entrepreneurship. Aversion to risk and resistance to change. Inability to see an unsuccessful attempt as a method of learning rather than a failure. ENTREPRENEURIAL CAPACITY A wealth of creative human capital, with a strong base education and an ability and willingness to learn. Incredible tenacity of Australian entrepreneurs once they take the plunge. Natural networking ability. The have a go spirit. Ability to adapt and improvise. EDUCATION A world class education system, where a good education is largely available to all. Increasing availability of entrepreneurship education. FINANCIAL SUPPORT More risk capital available than ever before. High level of home ownership provides many Australian entrepreneurs with seed capital.. Not enough people have genuine entrepreneurial experience to help and advise the aspiring entrepreneurs the grey hair factor. Lack of financial literacy, especially with respect to accessing capital. Widespread underestimation of the important of alliances, collaboration and building a team. Lack of rewards for success and high penalties for failure. A tendency to settle for a moderate level of achievement rather than aspiring to reach full potential. A tendency to rely on others usually the government or employers to improve one s business or employment environment. An education system that does not, in general, foster entrepreneurship or provide guidance on how to go about it. Lack of recognition that spending on education is an investment rather than an expense. A system that emphasises on theoretical, classroom learning at the expense of practical, experiential learning. Still a lack of early stage equity capital (this is partly driven by the lack of skill of entrepreneurs in applying for funding) Still difficult to get debt capital. Banks and other lenders do not make enough effort to make their lending procedures and policies easy to understand. GOVERNMENT POLICY SUPPORT Political and economic stability can be counted on in Australia, which creates a favourable environment for starting businesses. Australian politicians are relatively accessible and willing to listen to constructive proposals for policy and regulatory change. The compliance burden is too high and constantly changing. The taxation and regulatory environment creates a disincentive for small businesses to employ staff. The speed of delivery of government programs does not match the requirements of entrepreneurs in a fastchanging market. 29

37 Part Three Implications THE VALUE OF GEM AS A MONITOR This year shows the value of the Global Entrepreneurship Monitor and its focus on the entrepreneurial sector of the economy. Traditional measures and measurers of economic performance deal exclusively with the established economy. If one relied on these traditional measures and commentaries, one would be completely blind to what is possibly the most damaging effect of major blows to business confidence: the undermining of new business ventures. By revealing this so starkly, GEM may have shown that it is a unique and valuable early indicator of potentially grave long-term economic effects. Without GEM to warn us (and to warn us with reference to both longitudinal and cross-sectional data) who would have had any inkling of just how many new ventures were not started this year? Extrapolating from last year s start-up participation rate of 9.0 percent with an average of 2.21 owners per start-up, produces an estimate that there was of the order of 500,000 start-ups in Extrapolating from this year s start-up participation rate of 3.8 percent, with an average of 1.87 owners per start-up, produces an estimate that there was of the order of 250,000 start-ups in Many start-ups might not come to fruition, of course, but even allowing for the fact that by discounting the figures by two-thirds to be conservative, the estimates become 170,000 and 85,000 start-ups respectively. Thus perhaps 85,000 businesses that might have started in 2002 did not do so, due to the decline in entrepreneurial confidence. No established economic evaluation agencies of which we are aware are alert to the implications of the potential economic losses involved in such a dramatic fall in entrepreneurial activity. For instance, the most recent IMF staff report on Australia (IMF 2002b) does not mention the word entrepreneurship. With its focus on traditionally measured aspects of established enterprise, it paints a positive picture of Australia s near-term economic future. Confidence has improved from the low point of September 2001, corporate profits have remained resilient, and employment growth rebounded in early 2002, all factors that bode well for private consumption and investment. Business investment, particularly in machinery and equipment, is poised for a strong recovery (led by mining), as evidenced by the strong spending in the fourth quarter of 2001, the rise in the share of profits in GDP, and by recent surveys of business intentions. (IMF 2002b: 9) Australia could do better by looking beyond the limits of the indicators that are featured in a pronouncement like this. Looking closely at the quotation above from the IMF report, all factors really means all standard measures of consumption nothing to do with entrepreneurship, which has been shown to have a bearing on economic prosperity. Investment... led by mining implicitly positions Australia in the traditional role of being a big hole in the ground for the rest of the world: a producer of unimproved commodities. There is a legion of research, policy commentary and policy itself, which has warned Australia of its need to move beyond at least some of its commodity ethic and become part of the learning economy: to become a clever country, a knowledge nation or to back Australia s ability. Unfortunately, our strengths remain the old strengths of a commodity exporter; our entrepreneurial capacity in both its skills and motivational aspects is both fragile and volatile. When the IMF staff report on Australia talks about the share of profits improving it could well be measuring the opposite of innovation: decisions to cut back on risky expenditure. When it talks about surveys of business intentions, it is really talking about intentions to do what has always been done not intentions to do new things or pursue new opportunities. In short, this statement in the IMF staff report on Australia says nothing about the importance of new venturing. It only gives Australia acknowledgement for being reliable: that is, for doing the old things in predictable ways. Concentration on traditional 30

38 performance measures of established enterprise masks the vulnerability of Australia s commitment to and capacity for entrepreneurship. For two years Australia, as measured by start-up and new firm participation rates, has seemed to be among the most entrepreneurially active countries of the world although the authors of this report have consistently warned against complacently assuming that high start-up rates are either durable or an indication of enterprise quality. Now even the activity never mind its quality is curtailed. This year we fell to middling status on GEM s index of total entrepreneurial activity, which gives a clear indication of how potentially fragile entrepreneurship really is in this country. When the question is asked why is it so? the answer comes back that neither the Australian public nor the policy commentators or the policy makers really understand the importance of entrepreneurial capacity to the innovation process. The implication is that unless the appropriate understanding is quickly forthcoming the level of entrepreneurship in Australia may fluctuate violently and impede or even prevent our transition to a globally competitive learning economy. After a brief elaboration of these themes, we proceed to make five policy recommendations. A DEEPER UNDERSTANDING OF THE INNOVATION PROCESS IS NEEDED APPROACHES TO THE STUDY OF INNOVATION A major issue for the study of innovation concerns the choice of the principal level of analysis. For instance, Schumpeter (1934 and 1942) focussed on the economy-wide implications of innovation and stemming from his influence a deep body of scholarship has culminated in interest in what are now called national innovation systems (see, for example, DISR 1999). The influential Harvard researcher, Michael Porter (1980 and 1991) focuses his attention at the industry level. At the other extreme, there is a large and diverse body of scholarship focused on innovators and entrepreneurs at the individual level. However, the deepest body of recent innovation scholarship concentrates on the firm as the unit of analysis and this is an appropriate focus when policy-makers are seeking to assist the SME sector. Before the National Innovation Summit, a predicating document was issued, entitled Shaping Australia s Future (DISR 1999). In his contributed note to that document, Mark Dodgson (1999) provided a concise review of recent literature pertaining to systems designed to integrate the innovation process within the firm. Dodgson stressed the important work of Rothwell (1992) in demonstrating the evolution of process concepts of innovation through five conceptual generations. But for analysis of the role which entrepreneurial capacity plays within a growing firm, the most relevant theorist is Edith Penrose. INNOVATION FROM THE PERSPECTIVE OF THE FIRM: A MODEL Edith Penrose s view of the firm (1959/1995) emphasises the importance of entrepreneurial capacity. Penrose sees the firm as a collection of the potential services embodied in a set of resources that are actually or potentially under the administrative control of a team possessing both managerial and entrepreneurial competence (paraphrase of Penrose 1959/1995: 31-64). In a paper entitled A special theory of the value of innovation, Hindle developed a theoretical, mathematical model of the value accruing to the innovation process from the point of view of the management of a Penrosian firm (Hindle 2002a). Setting aside the mathematics, Figure 19 summarises the key relationships of the Hindle model. INNOVATION, OPPORTUNITY AND ENTREPRENEURIAL CAPACITY Hindle (2002a) introduced the terms Big-I and small-i innovation. An excellent definition of Big-I Innovation is: the process whereby new ideas are transformed, through economic activity, into a sustainable value-creating outcome (Livingstone 2000:3). The Big-I perspective emphasises the importance of 31

39 Figure 19 The Big-I innovation process [SR1] (source: Hindle 2002a) Entrepreneurial Environment Small i innovation Entrepreneurial Capacity Productive Opportunity Big I innovation value-creating commercialisation through applied, entrepreneurial capacity. Small-i innovation is any form of new knowledge capable of providing the basis for a Big-I transformation process. Within an entrepreneurial environment, the iterative process of Big-I Innovation (and the resultant value pertaining to it) is a function of the interaction of small-i innovation (the intrinsic value of new knowledge), productive opportunity, and entrepreneurial capacity. The act of value creation through transformation is not a static state but requires continuous managerial effort in an iterative process. This model and argument is highly compatible with the GEM research model (Figure 1), which also stresses the importance of entrepreneurial capacity. Both lead to one, dominant implication for innovation policy: entrepreneurial capacity not the quality of new knowledge is the critical determinant of ultimate economic value. Put another way, Big-I not small-i should be the perspective adopted for policy formation. This in no way belittles the importance of new knowledge. It is axiomatic that if there is no new knowledge ( small-i innovation) available to a firm, there can be no value creation based on it. But the theory articulated above indicates that the distinctive domain of innovation policy should centre on entrepreneurial capacity, which is the principal mechanism of knowledge transformation in an innovation process. Only through applied entrepreneurial capacity can any implicit value of new knowledge be made explicit in the form of economic value. The new knowledge may have value for its own sake or value for its creative satisfaction or value measured in myriad ways that do not involve dollars. But, sadly, it will have no economic value. Remorselessly, the theory leads to the proposition that national innovation policy should emphasise programs that enhance national entrepreneurial capacity. Even more sadly, Australia still confuses innovation with the production of new knowledge. Nationally we think of innovation with a small-i not a Big-I and entrepreneurship is relegated to an afterthought. THE GENERAL PUBLIC S PERCEPTION OF INNOVATION This year, the National Innovation Awareness Council (NIAC) commissioned a survey to investigate public awareness and perceptions of innovation in Australia (DITR 2002). For the purposes of the study, respondent demographics were distinguished into four distinct group classifications: youth (students aged 13 to 21); parents of students in full-time study ; educators and career advisers and proprietors of small to medium size enterprises (SMEs). The survey confirmed that the majority of Australians were able to offer some kind of definition of innovation (though a sizable minority, particularly among the students, could not). Degree of definitional emphasis differed between the four groups, but the most common concepts associated with innovation were: new ideas (topped the list in all four groups); new ways of doing things; new technology; and creativity. Only one of these concepts new ways of doing things even remotely embraces the concept of achieving a tangible, valuable outcome. The rest focus on the idea-generation, new knowledge, small-i component of the innovation process. 32

40 AUSTRALIA S EXISTING INNOVATION POLICY There is no scope in this report for a probing analysis of existing innovation policy in Australia. This has been provided in a paper by Hindle (2002b) which is available on the GEM Australia website ( His analysis demonstrates that the policy-makers have largely mirrored the general public in their commitment to a small-i view of innovation. GEM EXPERTS EMPHASISE THE IMPORTANCE OF ENTREPRENEURIAL CAPACITY Through the three years of the GEM Australia study (as articulated in previous chapters of the report), the expert depth interviews have featured the importance of Australia s minimal understanding of entrepreneurial capacity. Their policy improvement suggestions, spanning three years, converge on two main themes as priority areas for improving entrepreneurial capacity: cultural change and education. For GEM experts, cultural change involves the need to change prevailing public attitudes toward entrepreneurship so that it becomes a more socially legitimate activity in short, a profession that parents would feel comfortable about their children undertaking. Education involves both building the skill level of those who are already playing in the entrepreneurial space or aspiring to do so, and educating the general population about what entrepreneurship actually involves. The two are related. If more people understood the long, risky and difficult process involved in turning an idea into a business, they would be more respectful and less resentful of those who succeed, and more tolerant of those who fail. And if more of the population valued entrepreneurial activity, then there would be greater interest in learning how to do it better, and therefore more support for educational initiatives that teach the necessary skills. Policy aimed at cultural change through a variety of entrepreneurship education programs at all levels of society would encourage more people to get involved in entrepreneurial activity. That, in turn, would lead to more people with the experience to manage effectively the business risk involved in new knowledge dissemination, thus improving the probability of success. Some specific areas for action identified by the GEM interviewees follow. Cultural change More widespread and accurate reporting of entrepreneurship so that the process becomes understood and respected. Entrepreneurship is not about getting rich quick, nor is it rocket science that only born entrepreneurs can achieve. And it is not confined to for profit ventures. A more positive portrayal of entrepreneurs in the media and encouragement of positive role models. More tolerance of failure. If it was more widely accepted that honest failure is a learning experience rather than a black mark, then more Australians would be prepared to have a go at turning their good ideas into commercial reality. Enhancing entrepreneurship s legitimacy and skills through education: Presenting entrepreneurship as a legitimate career choice. Identifying, nurturing and educating students with entrepreneurial potential. Training non-entrepreneurs in entrepreneurial skills, so that they can work more successfully with entrepreneurs. Appropriate delivery of entrepreneurship education: Using the right sort of teachers. The business world is prepared to help. Using an experiential approach. Let people learn by applying classroom knowledge to real life businesses their own or others. Integrating entrepreneurship education into existing courses, so that every student can get a flavour of it. Learning by doing Entrepreneurial activity breeds better entrepreneurs. The best way we can build entrepreneurial capacity in Australia is to provide more opportunities for Australians to get entrepreneurial experience. This includes Australians from all backgrounds, professions, skills and disciplines from scientists to creative artists. Australia has a higher level of enthusiasm and have a go mentality than most countries, but we lack entrepreneurial skill and we lack cultural support. 33

41 Some of the skill deficit can and should be addressed by education, but the most effective way to learn is by doing. We need to create an environment that encourages entrepreneurship and supports those who have a go, fail, learn from the experience, and try again. This year s data showed that those who had closed down a business in the last 12 months were more likely to believe they had the skills to start another one. POLICY THEMES The evidence from three years of GEM Australia supports the conclusion that entrepreneurial capacity is crucially important as the transformation agent capable of converting a good idea into a commercial reality. This is well understood by experts including some politicians and influential scientists but has not found its way into either public consciousness or public policy. This has two major observable consequences. General: Innovation policy in Australia is currently a misnomer. What is currently called innovation policy (most particularly as represented by the Innovation Summit initiatives and Backing Australia s Ability) is not really about innovation in its fullest sense. It is about Research and Development (R&D) in quite a narrow sense. And it is more about research than development, and more about basic research in the physical sciences than applied research in a range of disciplines. Somewhere in the Summit process, the innovation policy label has been usurped and misapplied. Specific: If innovation is to produce value, entrepreneurial capacity is the key issue. But the public does not understand this fact. And the policymakers have not focussed on it despite expert opinion (congruent with both theory and international best practice) that, in the context of innovation, entrepreneurial capacity is a far bigger problem for contemporary Australia than is knowledge creation and idea generation. POLICY RECOMMENDATIONS SCHOOLS Recommendation 1: GEM Australia recommends the creation, development and implementation of a national, assessable high school curriculum for the study of innovation and entrepreneurship. In the very first GEM Australia study (Hindle and Rushworth 2000: passim) and ever since, the entrepreneurial expert respondents have emphasised that the only way to achieve a necessary cultural change is through the education system. They have stressed that entrepreneurial education needs to start well before university. Piecemeal programs exist and many have shown excellent results. But piecemeal approaches will never effect the needed cultural change that has been called for since Barry Jones book Sleepers Wake (Jones 1983) first urged our national conversion to a more innovative and entrepreneurial culture. The results of the latest NIAC survey (DITR 2002) provide just one more chapter in the litany of evidence demonstrating that the aggregate Australian psyche does not understand innovation as a value creating process or entrepreneurial capacity as key driver of that process. In aggregate, Australians and the people who make policy on their behalf still believe that mere creation of new knowledge is sufficient to ensure innovation. Twenty years of exhortation and piecemeal programs have failed to correct the national misapprehension. The time has come to take the lesson into the schools, teach it and assess it. This recommendation dwarfs all others. It is fraught with contention and difficulties and will generate strong opposition from many quarters. However, the evidence, not just of three years of GEM Australia, but of 20 years failure of good intentions to effect cultural change forces this conclusion. If we lack the national will to put innovation and entrepreneurship formally on the national high-school education curriculum, no significant cultural change can or will occur. Our tradition as creators of superb intellectual property that we fail to commercialise effectively will continue. Who should take responsibility for implementing this recommendation? The combined education departments of the Commonwealth and the States must inevitably 34

42 become the key implementers of this recommendation if it is ever to bear fruit. But it is unlikely, probably impossible, that the education bureaucracies will take any initiating drive in this direction. The initial impetus will have to come from industry interest groups, leaders of innovative companies, concerned citizens and policy champions within the political parties. They will have to apply direct pressure to the policy-making organs of the major political parties. When, as a matter of government policy, a minister in power tells his or her education bureaucracy to initiate development of an innovation and entrepreneurship curriculum for schools, it should and does happen. UNIVERSITIES Recommendation 2: GEM Australia recommends that, commencing in 2003, an annual national conference be held to examine and disseminate leading-edge knowledge about a selected topic pertaining to the enhancement of Australia s entrepreneurial capacity. The conference should embrace both leading edge theory in the selected field and workshops aimed at translating that theory into workable procedures for practising managers. Throughout this report, enough has already been said about the importance of entrepreneurial capacity. An annual university-convened, management oriented conference could become a powerful mechanism for knowledge transfer and skills development. It is envisaged that the academic output from the conference would be an edited book (or at least a special issue of a relevant management journal) containing a collection of contributed papers. Each paper would be an original contribution to knowledge or a distillation of extant knowledge about an aspect of entrepreneurial capacity germane to Australian management. The managerial output of the conference would be a publication containing best-practice case studies, articles by leading practitioners and lessons learned during the conference workshops. Who should take responsibility for implementing this recommendation? If relevant sections of the academic and business communities embraced this recommendation, it is envisaged that a university (a different one from year to year) would determine the focal topic, set the conference agenda, obtain a principal sponsorship or partnership arrangement with a business or community organization (and several associated levels of support) and solicit both academic and practitioner contributions. SMALL AND MEDIUM ENTERPRISES Recommendation 3: GEM Australia recommends the creation of an Australian SME entrepreneurial knowledge-transfer network. The network would provide free on-line delivery to the business community at large of highly useful knowledge, teaching materials and packages currently developed by and limited to SMEs with high levels of proven entrepreneurial capacity. While aggregate national levels of entrepreneurial capacity are poor, examples of excellence and worldbest-practice SMEs do exist in Australia. The quest for enhanced national entrepreneurial capacity must make use of the best of Australia s home grown knowledge by making available to everyone the wisdom of the best and fastest-growing SMEs. Knowledge about managing the innovation process that is really useable at the sharp end of fast growing companies will not come from business schools at universities. It will come from SMEs themselves. For example, CEOS Pty Ltd (refer to the case studies presented below, in the concluding section of this chapter), has developed a highly useful financial model for forecasting the accounting and taxation implications of alternative new product development strategies with respect to Australia s R&D tax legislation. CEOS is willing to share the model with every other Australian SME completely free of charge. What CEOS cannot spare is the time it would take to professionally document, explain and present the information in a manner suitable for on-line transmission to a wide audience. CEOS has the information in a form more than adequate for use in-house. That is a very different thing from transforming it into a suite of world-class teaching materials. The irony of the situation is that CEOS and all other similarly-motivated SMEs will need a well-funded partner to help them give away their wisdom for free! 35

43 Who should take responsibility for implementing this recommendation? All initiatives would have to stem from the pure good will of motivated SME managements. But the next and most vital stage is currently missing. They need somewhere to take their leading-edge knowledge: a centre where it could be evaluated and developed into well communicated, web-based teaching packages and finally placed and promoted on-line. The funding for a centre capable of being the heart of this entrepreneurial knowledge transfer network could come from any agency, government or private, capable of seeing merit in the project. THE FIRST COLLABORATIVE DEVELOPMENT CENTRE Recommendation 4: GEM Australia recommends the creation of a national collaborative development centre for research, dissemination and application of knowledge about the development of entrepreneurial skills. Last year, GEM Australia (Hindle and Rushworth 2001b: 47-48) recommended the establishment of a Collaborative Development Centre (CDC) program analogous to the existing Collaborative Research Centre (CRC) program but focused on the D in R&D. The GEM 2002 findings reinforced the need for such a program. The concept is that CDCs created under an analogous program would also be co-operative partnerships between industry, universities and other relevant agencies. However, the subject of their research would not be the generation of new technical knowledge small-i innovation. CDCs would pursue knowledge in all areas germane to the better understanding and practice of developing and commercialising the innovations which hard science produces. CDC research would be research about Big-I innovation: the process of commercialisation itself. CDCs could be centres of excellence in the production and use of knowledge stemming from the management sciences, social sciences and humanities. Their outputs would complement the current CRC focus on knowledge creation and dissemination in the physical sciences. It was suggested last year that it would be possible to conceive of many CDCs, though none have yet been established. We now call, as a matter of urgency, for the formation of just one: a CDC specifically devoted to the development of entrepreneurial capacity in Australia with a specific focus on the SME sector. Who should take responsibility for implementing this recommendation? The lobbying for creation of the suggested entity and initial seed funding of it would have to come from a consortium of peak industry bodies. SECTORAL TARGETING To this point, all policy recommendations have been broad and national in scope, as befits a nationally focused project. However, the sheer scope and volume of data generated in each year s GEM study will always offer, to the authors of the GEM Australia report, the potential and the temptation to make a great many recommendations concentrating on various sectors of Australia s economy and society. The issue of sectoral selection will always be a matter for judgment constrained mainly by the limitations of space. Rather than give patchy coverage to many sectoral perspectives, we have taken the decision that henceforth GEM Australia will give detailed attention to one area of special interest each year. The focus will take the form of a GEM Australia Focus Report. This year s inaugural report focuses on Indigenous entrepreneurship and is presented as Part Four of the document, below. For the sake of providing a complete set of policy recommendations in this section, we list, without discussion, the fifth and final of our recommendations. The rationale for, and discussion of, this recommendation is contained in Part Four s Focus Report, which follows. Recommendation 5: GEM Australia recommends the development and implementation of a targeted pilot program to test the efficacy of creating a diversified, national Indigenous entrepreneurship education and training program for Australia. 36

44 THE KEY ISSUES FOR SME MANAGEMENT At a recent meeting, the Chief Scientist of Australia, gathering data for the second phase of his investigation into innovation in Australia was introduced to the CEOs of two highly-successful, high-growth, Australian SMEs 7. Jonathon Spring is CEO of CEOS Pty ltd. Started by three PhD graduates from the Photonics Research Laboratory at the University of Melbourne, CEOS began operations in 1996 focussing on upon broadband communications, opto-electronics, and electronics design services and internally generated products. CEOS has developed an extensive portfolio of commercial intellectual property and products and has a track record of completing projects on time and within budget. CEOS developed organically and debt-free at more than 100 percent p.a. over its initial five years. Its projected turnover in 2003 is AU$8 million. The original three employees have grown to 17. Robert Green is CEO of CommTel Network Solutions Pty Ltd, a specialist company, providing design, engineering and integration services for advanced telecommunications systems. CommTel s core expertise is in the application of new and advanced optical fibre transmission technologies, including photonics, to either new or particularly challenging applications in the power utility, oil and gas, transport and emerging carrier markets. The company operates three business groups; Engineering Consulting, Telecommunications Products and Projects, which combined enable CommTel to offer a complete range of products and services. From its start in May 1998 to the 2002/03 financial year, CommTel has grown from zero to AU$12 million in turnover and from 3 founders to 16 equivalent full-time employees, and its growth is accelerating rapidly. These are highly research intensive SMEs but both CEOs told the Chief Scientist of Australia that the technical intellectual property ( small-i ) at the heart of their companies valuable though it was was LESS valuable than their companies entrepreneurial capacity to transform the intellectual property into dollars ( Big-I ). This would not have surprised the Chief Scientist of Australia. In 2000, he produced his assessment of Australia s Science, Engineering and Technology (SET) base (Batterham 2000). In his report, The Chance to Change, Batterham offered this definition of innovation : Innovation is the process that translates knowledge into economic growth. Innovation is much more than invention or R&D. It encompasses all activities encouraging the commercialisation and utilisation of new technologies scientific, technological, organisational, financial and business (Batterham 2000: p15). In all substantial respects, this definition is identical to that of Catherine Livingstone, former CEO of Cochlear Limited, one of Australia s most successful examples of technology commercialisation. Last year Livingstone was a GEM Australia expert respondent. Her definition was presented in delivering the Warren Centre Innovation Lecture of 2000: I will interpret (successful) innovation as meaning the process whereby new ideas are transformed, through economic activity, into a sustainable value-creating outcome. There are two key words in this interpretation which are worthy of emphasis: process : innovation is not just the idea innovation is only achieved when the idea has been transferred into an outcome which has value The second key word is sustainable : Sustainability requires good integration with those who assign value i.e. the customers, the market, and it implies rigour and continuous measurement. (Livingstone 2000: 3). The advocates of this definition include Dr Alan Jones of the Department of Industry Tourism and Resources, the body charged with administering innovation policy. At a recent international forum, Jones presented a paper on innovation in Australian SMEs, which commenced by endorsing Livingstone s definition (Jones 2001). GEM Australia commends it as a definition worthy of wide acceptance and promotion in Australia because it conveys three main benefits. 7 The meeting took place at the offices of Redcentre in Melbourne on Tuesday 17 September, at the behest of the Chief Scientist. Attendees were Dr Robin Batterham, Chief Scientist of Australia, Dr Jonathon Spring, CEO of CEOS, Robert Green, CEO of CommTel, Professor Kevin Hindle of the Australian Graduate School of Entrepreneurship, and officers of Redcentre, a business development company devoted to networking commercial opportunities in selected high-technology areas. 37

45 1. It stresses that the full impact of innovation is not achieved until ideas have been transformed into tangible outcomes. This is compatible with many influential theories of innovation (Dodgson and Bessant 1996: passim; Dodgson 1999: passim; Rothwell 1992). 2. It is applicable to a public good as well as commercial outcomes. 3. It overtly emphasises the indivisible, mutual importance of good science 8 and good business. One without the other means innovation is incomplete. But, as we began this section of the report, so shall we finish: with a warning. On the same day, October 2, 2002 two events of great significance to would-be innovative SMEs found their way into Australia s headlines. First, was the closure by Ericsson Australia of its Australian R&D lab, which employed 450 people in Melbourne and Sydney. Simultaneously, the Australian Industry Group (AIG) released its report Research and Development Expenditure and Drivers in Australian Manufacturing (AIG 2002). The report, tabled in Parliament, warned that R&D is still seen as a short term cost rather than a long term investment for many Australian companies, and that structural impediments remain in terms of lifting business overall propensity to invest more in R&D. Ninety-six per cent of manufacturers undertake no R&D and current R&D activity is equivalent to less than the average cost of a firm s electricity bill. Both revelations augment the growing body of evidence for the proposition that Australia s R&D future, its innovative and entrepreneurial future, lies with the SME sector rather than the large corporate sector. But the revelations of the AIG report are at risk of being wrongly interpreted. They will inevitably give rise to a chorus of voices, clamouring in the ear of government policy makers for more money for research. Every responsible SME manager should be on guard against any tendency or any lobby that seeks to emphasise R at the expense of D. All the evidence and argument of GEM 2002 points to the fact that the innovation policy emphasis in this country should shift consciously and markedly towards D : development. Whether one calls it development or commercialisation or the transformation of intellectual property into economic value or by any other name, the essential ingredient of success and high growth in the SME sector will be what it always has been: entrepreneurial capacity the ability of a business to create value out of what it knows. Until we develop more substantial national entrepreneurial capacity, the level of entrepreneurial activity in Australia as measured in start-up and new firm activity and in other ways will never be robust. 8 Here, science means simply knowledge of all kinds and is in no way limited to high technology or even technology. New knowledge could be as simple as an act of recognition as articulated by Mitchell (2000: 7). 38

46 GENERAL REFERENCES Australian Bureau of Statistics (2001). Small Business in Australia Update Abs Cat. No Canberra: Australian Government Printing Service. Australian Bureau of Statistics (2002a). Small Business in Australia. Canberra: Australian Government Printing Service. ABS Catalogue # Downloadable from Last accessed for this report 18 September Australian Bureau of Statistics (2002b). Characteristics of Small Business in Australia. Canberra: Australian Government Printing Service. ABS Catalogue # Downloadable from Last accessed for this report 18 September AIG (2002). Research and Development Expenditure and Drivers in Australian Manufacturing. Canberra: Australian Industry Group. Downloadable at AVCJ (2001). Australian Venture Capital Journal. Year 11, No. 7 (March 2002). Batterham R (2000). A Chance to Change: Discussion Paper Submitted to the Minister for Industry, Science and Resources. Canberra: Department of Industry Science and Resources. DISR (1999). Commonwealth and State Government Programs Supporting Innovation in Firms at October Canberra: Department of Industry, Science and Resources. DISR (1999). Shaping Australia s Future Innovation Framework Paper. Canberra: Department of Industry Science and Resources. (PDF downloadable from DITR (2002). Survey of Public Awareness and Understanding of Innovation. Canberra: Department of Industry, Tourism and Resources. Study No Dodgson M (1999). System Integration of the Innovation Process within the Firm. Contributed note # 2 to DISR, Shaping Australia s Future Innovation Framework Paper. Downloadable at Dodgson M and Bessant J (1996). Effective Innovation Policy: a New Approach. London: International Thomson Business Press. ESI (2002). Environmental Sustainability Index Global Leaders for Tomorrow, Environment Task Force, World Economic Forum. HDR (2001). Human Development Report United Nations Development Program. Hindle KG (2002a). A special theory of the value of innovation. Australian Graduate School of Entrepreneurship Working Papers. Number Melbourne: Swinburne University of Technology. Hindle KG (2002b). How entrepreneurial capacity transforms small i into Big I innovation ; implications for national policy. Telecommunications Journal of Australia. 52 (3) Spring. Hindle KG and Lansdowne M (2002). Brave Spirits on New Paths: Toward a Globally Relevant Paradigm of Indigenous Entrepreneurship Research. Paper presented to the Babson-Kauffman Entrepreneurship Research Conference University of Colorado at Boulder. June. Hindle KG and Rushworth SM (2000). Yellow Pages Global Entrepreneurship Monitor Australia Melbourne, Australia: Swinburne University of Technology. Downloadable at Hindle KG and Rushworth SM (2001a). Regional Differences in Business Start-up Rates in Australia: Implications for Future Research and Public Policy. Proceedings of the ANZAM 2001 Conference, Auckland, New Zealand, ANZAM. Hindle KG and Rushworth SM (2001b). Yellow Pages Gem Australia Melbourne, Australia: Swinburne University of Technology. Downloadable at IMF (2002a). World Economic Outlook: Trade and Finance. Washington D.C.:International Monetary Fund. September Download from IMF (2002b). Staff Report for the 2002 Article IV Consultation. IMF Country Report No. 02/201. Washington DC: International Monetary Fund. 39

47 Jones A (2001). Innovation In Australian Small And Medium Sized Enterprises (SMEs). Paper delivered at the 2nd Arab Forum on Small and Medium Industries May 2001, Kuwait City, Kuwait. Downloadable at Jones B (1983). Sleepers, Wake! Technology & the Future of Work. Melbourne, Australia: Oxford University Press. Keynes JM (1936/1977). The General Theory of Employment, Interest and Money. London: Macmillan. First published Edition for the Royal Economic Society. All references are to the 1977 edition. Kovalainen A, Arenius P and Galloway L (2002). Entrepreneurial activity of women in the global economy: analysis of data from 29 countries. Poster session at the Babson-Kauffman Entrepreneurship Research Conference Boulder, Colorado. (contact Pia Arenius at Livingstone, C (2000). The Warren Centre Innovation Lecture Sydney: The Warren Centre for Advanced Engineering. Lumpkin GT and Dess GG (1996). Clarifying the Entrepreneurial Orientation Construct and Linking It to Performance. Academy of Management Review 21: Pearson N (1999). Rebuilding communities. Australian Broadcasting Corporation (Producer) Brisbane: Brisbane Institute. Penrose E (1995/1959). The Theory of the Growth of the Firm. First edition, Oxford: Basil Blackwell and New York: John Wiley & Sons. Second edition, 1980, Oxford: Basil Blackwell and New York: St. Martins. Revised edition, 1995, Oxford: Oxford University Press. Page citations are from the 1995 Oxford edition. Reynolds PD, Hay M and Camp SM (1999). Global Entrepreneurship Monitor: 1999 Executive Report. Kansas City, Missouri: Ewing Marion Kauffman Foundation. Reynolds PD, Hay M, Bygrave WD, Camp M and Autio E (2000). Global Entrepreneurship Monitor 2000 Executive Report. Kansas City, Missouri: Kauffman Center for Entrepreneurial Leadership. Reynolds PD, Camp M, Bygrave WD, Autio E and Hay M (2001). Global Entrepreneurship Monitor 2001 Executive Report. Kansas City, Missouri: Kauffman Center for Entrepreneurial Leadership. Reynolds PD, Bygrave WD, Autio E and Hay M (2002). Global Entrepreneurship Monitor 2002 Summary Report. Kansas City, Missouri: Kauffman Center for Entrepreneurial Leadership. Rothwell R (1992). Successful Industrial Innovation: Critical Factors for the 1990s. R&D Management, Vol. 22 No. 3, pp WCY (2002). The World Competitiveness Yearbook Lausanne: IMD. WEF (World Economic Forum) (2002). The Global Competitiveness Report New York: Oxford University Press. Wright R (1995). Logistic Regression. In Reading and Understanding Multivariate Statistics. Grimm, LG and Yarnold, PR. Washington DC, American Psychological Association: Zacharakis A, Neck H, Bygrave W and Cox L (2002). Global Entrepreneurship Monitor National Entrepreneurship Assessment United States of America. Kansas City, Missouri: Kauffman Center for Entrepreneurial Leadership. INTERNATIONAL COUNTRY CODES: AR = Argentina AU = Australia BE = Belgium BR = Brazil CA = Canada CH = Switzerland CL = Chile CN = China DE = Germany DK = Denmark ES = Spain FI = Finland FR = France HK = Hong Kong HR = Croatia HU = Hungary IE = Ireland IL = Israel IN = India IS = Iceland IT = Italy JP = Japan KR = South Korea MX = Mexico NL = Netherlands NO = Norway NZ = New Zealand PL = Poland RU = Russia SE = Sweden SG = Singapore SI = Slovenia TH = Thailand TW = Taiwan UK = United Kingdom US = United States ZA = South Africa 40

48 Part Four The Sensis TM GEM Australia, 2002 Focus Report: Indigenous Entrepreneurship in Australia Note: as mark of respect to Indigenous nations and peoples, it is a convention adopted throughout this report to use a capital I for the word Indigenous whenever it occurs. The term Indigenous Australians refers to both Aboriginals and Torres Strait Islanders. THE GROWING POLICY IMPORTANCE OF INDIGENOUS ENTREPRENEURSHIP There has been wide discussion but little carefully focused research on Indigenous entrepreneurship in Australia. Two works are prominent. A seminal study is Dennis Foley s Successful Indigenous Australian Entrepreneurs (Foley 2000). This is a detailed, methodologically strong, case study analysis of the entrepreneurs of five Indigenous Australian businesses. His criteria focused on private sector entrepreneurship and his definition was: The Indigenous Australian entrepreneur alters traditional patterns of behaviour, by utilising their resources in the pursuit of self-determination and economic sustainability via their entry into selfemployment, forcing social change in the pursuit of opportunity beyond the cultural norms of their initial economic resources. (Foley 2000: 25) In a depth-interviewing study involving 40 carefully selected respondents, Hindle and Lansdowne (2002) developed a formal, globally relevant paradigm for the field of Indigenous Entrepreneurship Research. Their study included a distillation of the collective wisdom of Indigenous Australian and American Indian entrepreneurs and entrepreneurial experts, all of whom had high credibility in both the Indigenous and mainstream cultures of their respective nations. Hindle and Lansdowne (2002) provide a definition of Indigenous entrepreneurship. Indigenous entrepreneurship is the creation, management and development of new ventures by Indigenous people for the benefit of Indigenous people. The organizations thus created can pertain to either the private, public or non-profit sectors. The desired and achieved benefits of venturing can range from the narrow view of economic profit for a single individual to the broad view of multiple, social and economic advantages for entire communities. Outcomes and entitlements derived from Indigenous entrepreneurship may extend to enterprise partners and stakeholders who may be non-indigenous. In all nations with significant Indigenous minorities, the economic and social deprivation of Indigenous peoples has long been of deep policy concern, but both debate and administration of the issues particularly the welfare issue have not been in Indigenous control. Whatever the intentions of non- Indigenous governance and aid agencies, the result of taking responsibility out of Indigenous hands has resulted in a handout culture (Pearson 1999). Stimulation of Indigenous entrepreneurship has the potential to repair much of the damage through creation of an enterprise culture, which fully respects Indigenous traditions but empowers Indigenous people as economic agents in a globally competitive modern world. There is growing world-wide awareness that policies directed to developing Indigenous entrepreneurship have the win-win potential of enhancing Indigenous self-determination while reducing welfare costs. AN HISTORICAL PERSPECTIVE One dominant anachronism must be dismissed before any meaningful discussion of Indigenous Australian entrepreneurship can commence. Many contemporary analysts within the dominant culture take the current economically depressed status and relative deprivation of Australia s Indigenous population as a given as though it had no temporal dimension. Combine this with a tendency to equate technological development with economic development and it becomes easy to forget how high a standard of living Indigenous Australians had before colonisation. 41

49 Geoffrey Blainey (1982: v-vi) reminds us of this:... if an Aborigine in the 17th Century had been captured as a curiosity and taken in a Dutch ship to Europe, and if he had travelled all the way from Scotland to the Caucasus and had seen how the average European struggled to make a living, he might have said to himself that he had seen the third world and all its poverty and hardship. QUANTIFYING THE PROBLEMS OF PASSIVE WELFARE Contrast that situation with the position of today s Indigenous Australians. It is estimated (ABS 1996: Census) that there are just over 420,000 Indigenous Australians, living mainly in urban centres. More than half live in New South Wales and Queensland but the highest regional concentration (27.7 per cent) live in the Northern Territory. The following figures come from Council for Aboriginal Reconciliation 2000 and Allen Consulting Group Indigenous Australians are two and a quarter times more likely than the non-indigenous to die before birth. Their life expectancy is only two thirds as long as a mainstream Australian. They have over 16 times the incarceration rate of non-indigenous Australians. They need hospitalisation nearly twice as much. Their unemployment rate is nearly four times the mainstream average. Their children are subject to nearly four and a half times the number of protection orders. They are more than 47 times more likely to be living in a dwelling with ten or more people. They have less than half the mainstream retention rates for final year high school. The Indigenous have only a third of the rate of post-high school qualifications and only 68 percent of the median weekly income of the non-indigenous. The hospital admissions rate for Indigenous women, due to interpersonal violence, is more than 23 times the rate for non-indigenous women and the strongest causal factor is substance abuse. This litany of disadvantage occurs despite the Federal Government (Australia has six State and two Territory Governments who also contribute) spending $2.2 billion or $21,450 per Indigenous household (Office of Indigenous Policy: 1999). So, despite the existence of sporadic successes, it is fair to conclude, in the aggregate, that Indigenous Australians as nations and individuals appear to have suffered rather than benefited from the development of the mainstream Australian state. And it can equally be said that Indigenous welfare and adjunct policies including those designed to foster entrepreneurship (Tesfaghiorghis and Altman 1991) have been and remain unsuccessful. These conclusions can be derived dispassionately: from primary data sources. No selective choice of evidence or ideological bias is required. CONTRASTING AUSTRALIA AND NORTH AMERICA In Australia, the potential for Indigenous entrepreneurship to redress past failure has been widely, if patchily discussed 9. However, there is a big gap between discussion and action. In Australia, Indigenous entrepreneurship is probably in decline. A high-end estimate of the proportion of Indigenous Australians owning their own businesses, resulting from several specially commissioned surveys, was given by Altman and McLennan (1996), cited in Schaper (1999: 89). For the year 1994, the proportion of Aboriginal males managing their own business either as owner-employers or as self-employed individuals was only 6.3 percent, compared to the Australian average of 17.3 percent. Among women, the discrepancies were 3.8 percent versus 11.8 percent. There is evidence that the relative proportions have declined during the last eight years. The Department of Foreign Affairs and Trade 10 estimates that there are approximately 3000 Indigenous people currently running their own businesses. Dividing by the ABS estimate of an Indigenous population of 420,000 (ABS 2002) we obtain a figure of 0.7 percent of the Indigenous Australian population engaged in business ownership. The flaw here is that the division only allows for one owner per business. Still, the calculus is sufficient to indicate a declining trend since In contrast, Canada and the USA demonstrate increasing levels of Indigenous entrepreneurship. The number of Aboriginal people who are self-employed 9 See Altman and Nieuwenhuysen, 1979; Howard 1982; Fisk 1985; Miller Report 1985; Beckett 1987; House of Representatives Standing Committee on Aboriginal Affairs 1990; Moizo1990; Perkins 1990; Brennan 1991; Sanders 1991; Mansell 1992; O Donoghue 1992; Butlin 1993; CAEPR 1993; Daly 1994; Bourke 1998; Roberts 1998; Hunter 1999; Schaper 1999; Trudgen 2000; Allen Consulting business.html, accessed October

50 in Canada is growing at double the national average and this holds for women as well as men. The movement to knowledge based rather than solely resource based Indigenous enterprise is wellestablished. The creation of 12,710 new Aboriginal-owned businesses between 1981 and 1996 has added 48,502 new jobs of which 30,444 or 63 percent are filled by Aboriginal people. Aboriginal youth are more likely to be self-employed than all Canadian youth. Nineteen per cent of Aboriginal-owned businesses are involved in export compared with four per cent for Canada as a whole. (Aboriginal Business Canada, quoted in Allen Consulting 2001: 10). America also shows high growth in Indigenous entrepreneurship (US Census 2000). The number of businesses owned by American Indians in the U.S. increased by 84 percent between 1992 and 1997, to 197,300 compared with a seven percent increase for all U.S. firms. Receipts of American Indian- and Alaska Native-owned firms rose 179 percent to US$22 billion in 1997, compared with a 40 percent increase for all US firms over the same period. Four states, California (13.5 percent), Texas (8 percent), Oklahoma (7.7 percent) and Florida (5.3 percent) accounted for 34 percent of all American Indian- and Alaska Native-owned firms 11. Clearly, Indigenous entrepreneurship is an area worthy of policy attention in Australia. But policy cannot be paternalistic or it will not succeed. CULTURAL MISUNDERSTANDING Globally, reconciliation of all kinds is a major theme in the relationship between the dominant state and Indigenous peoples. A review of existing literature and policy implementations shows that reconciliation is at the heart of the two related themes that dominate the emerging field of Indigenous entrepreneurship (Hindle and Lansdowne 2002). Those themes are: 1. How do we reconcile tradition with innovation? 2. How do we employ mutual cultural understanding to blend the best of both worlds? The globally relevant answer to both questions is: hard work based on structured understanding. Establishing empathy between mainstream and Indigenous cultures requires great efforts based on sensitivity to Indigenous heritage. It is especially important for members of the dominant culture to develop a deep rather than a superficial approach to the Indigenous understanding of time. Using Indigenous Australia as an example, we can begin by trying to understand the trans-temporal nature of The Dreaming. It is a term (following Stanner in a paper first published in 1956) now commonly used as a collective noun to summarize the various ways that a great variety of Aboriginal traditions describe the creative era: the time when the worlds of nature and culture came into being. Rose calls it the heroic time which existed in the past and still exists today (Rose 1988: 260). Stanner created the term everywhen in attempt to generate empathy for the idea. One cannot fix The Dreaming in time: it was, and is everywhen. (Stanner 1987: 225). Edwards concludes: The Aboriginal concept of time is therefore cyclic, rather than linear, but in the sense that each generation is able to experience the present reality of the Dreaming. (Edwards 1998: 79). Here lies the great entrepreneurial excitement and vast future potential of The Dreaming in Australia, and of all Indigenous spiritual and cultural traditions, wherever they are found. These traditions offer not a closed book of immutable scripture, but an open universe of continuous possibility. The allegories of Indigenous tradition can show the way to what might be as well as what has been. This continuing and ever-present relevance of heritage, particularly spiritual heritage, is a dominant characteristic of all Indigenous peoples and nations. When applied to the challenge of entrepreneurship, far from creating a difficulty, Indigenous tradition, world-view, culture and values have the potential to be a powerful positive force. But this will only happen if they are properly and deeply understood by all who are committed to the development and education of Indigenous 11 US Census Bureau website < Accessed 16 April

51 entrepreneurs especially teachers coming from mainstream cultural traditions. There need be no paradox, no contradiction, no values sacrifice, no false dichotomy between heritage and innovation. The great teachings of many Indigenous traditions are rich in stories of brave-hearted men and women in quest of new knowledge, new ways of doing things, new discoveries leading to a better life for all the people. And that is the essence of ethical entrepreneurship. THE PATH TO CONSTRUCTIVE POLICY In his interview for this year s GEM project, Australian Indigenous leader, Noel Pearson, stressed the need to find ways to reconcile and blend best in mainstream and Indigenous cultures as a major issue for Indigenous entrepreneurship. Given cultural insensitivity, what works for the mainstream may fail in an Indigenous context. In his book, Why Warriors Lie Down and Die, GEM respondent Richard Trudgen articulated the main reason that well-meant policy initiatives fail. With reference to the Yolnu people of Arnhem Land he wrote: My colleagues and I believe there is nothing Yolnu cannot learn. The only limitation is the capacity of the teacher to teach. Unfortunately, dominant culture teachers and trainers currently come to Arnhem Land with almost no preparation in intercultural education. If the dominant culture trained its professionals in the Yolnu language, the Yolnu world-view and Yolnu cultural knowledge base and it is possible to do so then Yolnu would not have to do all the hard work to cross the cultural knowledge barrier. They could then receive the vital information they need to survive. (Trudgen 2000: 120). Despite all problems, Indigenous respondents to both GEM Australia and the Hindle and Lansdowne (2002) study were also optimistic. They believed that the strength of Indigenous tradition was robust enough and the spirits of individual Indigenous people were adventurous enough that paths to economic selfdetermination can and will be found. No one expressed this more potently or joyously than Lenore Dembski, a female Aboriginal entrepreneur from Arnhem Land who when asked what she thought was the biggest positive factor in the entire arena of Indigenous entrepreneurship said: Well it s the fact that we my Aboriginal people we re so smart. For thousands of years we found ways to live richly in a desert where other people might have just shrivelled and died. And despite all the mistreatment of the last two hundred years, we re still here; we re still trying. We re resilient you know. All respondents indicated a belief that paths can be found: that Indigenous and non-indigenous people together can foster Indigenous entrepreneurship if they are brave enough to ignore stereotypes and step away from traditional systems of passive welfare. POLICY RECOMMENDATION Recommendation 5: GEM Australia recommends the development and implementation of a targeted pilot program to test the efficacy of creating a diversified, national Indigenous entrepreneurship education and training program for Australia. The partners involved in developing the program would include (but not be limited to): the Aboriginal and Torres Strait Islander Commission; selected other Indigenous representative organizations; a selfselecting Indigenous group or community willing to receive and evaluate the pilot program; appropriate departments of state and federal governments; and universities with established programs in entrepreneurship education. The immediate focus would be creation of a culturally sensitive curriculum (including course materials and presentations in Indigenous language) and mentoring program aimed at developing the entrepreneurial capacity of members of a self-selecting Indigenous community desirous of starting new ventures or enhancing the commercial range and viability of organizations currently in operation. The objective would be an adult education program, possibly supported by seed funding assistance, whose first measurable outcome would be production by course participants of business plans capable of attracting debt and equity capital, and whose second assessable outcome would be the local development of skills required for successful implementation of those plans in the form of commercially viable new ventures. The pilot program, if successful could serve as the template for development of similar, culturally sensitive programs for a wide range of Indigenous groups and communities throughout Australia. 44

52 REFERENCES ABS Standards for Social, Labour and Demographic Variables. Canberra: Australian Bureau of Statistics. Altman J and McLennan W (1996). National Aboriginal and Torres Straight Islander Survey 1994: Employment Outcomes for Indigenous Australians. Canberra: Australian Bureau of Statistics. Altman JC and Nieuwenhuysen J (1979). The Economic Status of Australian Aborigines. New York: Cambridge. Blainey G (1982). Triumph of the Nomads: a History of Ancient Australia. South Melbourne: Macmillan. Beckett I (1987). Torres Strait Islanders: Custom and Colonialism. Sydney: Cambridge University Press. Bourke C Economics: Independence of Welfare. In Bourke C, Bourke E and Edwards W (eds). Aboriginal Australia 2nd Edition. St Lucia: University of Queensland Press. Brennan F (1991). Sharing the Country: the Case for an Agreement Between Black and White Australians. Ringwood, Victoria: Penguin. Butlin NG (1993). Economics and the Dreamtime. Melbourne: Cambridge University Press. CAEPR (1993). Self-employment amongst Aboriginal People. Canberra: Centre for Aboriginal Economic Policy Research. Daly AE (1994). Self-employed indigenous Australians in the labour market. Canberra: Centre for Aboriginal Economic Policy Research. Edwards W (1998). Living the Dreaming. In Bourke C, Bourke E and Edwards W (eds). Aboriginal Australia 2nd Edition. St Lucia: University of Queensland Press. Fisk EK (1985). The Aboriginal Economy in Town and Country. Sydney: AlIen and Unwin. Foley D (2000). Successful Indigenous Australian Entrepreneurs: A Case Study Analysis. Aboriginal and Torres Straight Islander Studies Unit Research Report Series 4. Brisbane: University of Queensland. Hindle K and Lansdowne M (2002). Brave Spirits on New Paths: Toward a Globally Relevant Paradigm of Indigenous Entrepreneurship Research. Paper presented to the Babson College Kauffman Foundation Entrepreneurship Research Conference University of Colorado at Boulder. June. House of Representatives Standing Committee on Aboriginal Affairs (1990). Our Future Ourselves: Aboriginal and Torres Strait Islander Community Control. Management and Resources. Canberra: Australian Government Publishing Service. Howard M (1982). Australian Aboriginal politics and perpetuation of inequality. Oceania, 53 (1) Hunter BH (1999). Indigenous self-employment: miracle cure or risky business?. Canberra: Centre for Aboriginal Economic Policy Research. Mansell M (1992). Beyond 2001: the white man s dream may be an Aboriginal nightmare. Mimeo. Hobart: Aboriginal Provisional Government. Miller Report of the Committee of Review of Aboriginal Employment and Training Programs (1985). Aboriginal Employment and Training Programs: Report of the Committee of Review. Canberra: Australian Government Publishing Service. Moizo B (1990). Implementation of the community development employment scheme in Fitzroy Crossing: a preliminary report. O Donoghue L (1992). One Nation: Promise or Paradox? Speech at the National Press Club. Canberra: ATSIC. Pearson N (2000). Our Right to Take Responsibility. Cairns: Noel Pearson and Associates Pty. Ltd. Perkins C (1990). Welfare and Aboriginal people in Australia: time for a new direction. The Frank Archibald Memorial Lecture. NSW: University of New England. Roberts D (1998). Self-determination and the Struggle for Aboriginal Equality. In Bourke C, Bourke E and Edwards W (eds). Aboriginal Australia 2nd Edition. St Lucia: University of Queensland Press. Rose DB (1987). Consciousness and responsibility in an Aboriginal religion. In Edwards W (ed) Traditional Aboriginal Religion: a Reader. South Melbourne: Macmillan. Sanders W (1991). Destined to fail: the Hawke government s pursuit of statistical equality in employment and income status between Aborigines and other Australians by the year Australian Aboriginal Studies, 1991 (2) Schaper M (1999). Australia s Aboriginal Small Business Owners: Challenges for the Future. Journal of Small Business Management. (July) Stanner WH (1956/1987). The Dreaming. In Edwards W (ed) Traditional Aboriginal Religion: a Reader. South Melbourne: Macmillan. Tesfaghiorghis H and Altman J (1991). Aboriginal Socio-economic Status: Are There any Evident Changes? Canberra: Centre for Aboriginal Economic Policy Research. 45

53 Appendix 1 Sensis TM GEM Australia, 2002 Expert Respondents Names are presented in alphabetical order per framework FINANCIAL SUPPORT Bob Christiansen Bob has had over 25 years of experience in computer services, software, and technology, in both large international and small entrepreneurial companies in the USA, Europe, and Australia. In 1985, he co-founded Corbel & Co., a venturebacked Florida-based software developer. In 1993, having grown the company to over 200 employees and a position as the dominant provider of AI-based document generation systems in the US, Corbel was sold to publicly listed Broadway & Seymour Incorporated. Prior to his return to Australia in 1997, Bob served as a senior technology advisor for the Commercial Technology division of Fidelity Investments in Boston. Conrad Crisafulli Conrad s background is in Engineering with a First Class Honours degree in Mechanical Engineering from the University of Western Australia. He is currently Managing Director of TechStart Australia and Executive Director of TechStart Fund Managers Pty Ltd. TechStart specialises in taking very early stage technologies from conception through to the point where they become interesting to the investment and venture capital community. Conrad served as chairman of Meditech Research Ltd (an Australian listed biotechnology company) over a period of resurgence in its share price. He is also a director of a number of start-up technology ventures, including Tinnitech Ltd, EON Pty Ltd and Melix Pty Ltd. Greg Peel Greg has been involved in providing innovative financial solutions for Australian and International corporations for over 18 years, having held senior positions with Banque National de Paris and Standard Chartered Bank. His experience covers developing markets, trade finance, capital markets and integrated global financial solutions. For the past 7 years he has held Senior positions with the Bendigo Bank covering the initial implementation of Business Banking and focusing on added value product development and paying particular attention to niche market activity. Currently he is Head of Strategic Development which involves the development and implementation of Community enhancement initiatives. Ann Sherry Ann is Group Executive for Westpac Banking Corporation, and the CEO of the Bank of Melbourne - the first female CEO of a bank in Australia. Throughout her career Ann has been a champion for women in business and improving their experience as customers. She was First Assistant Secretary of the Office of the Status of Women in Canberra, Vice-Patron of the Centre for Women and Business and past Chair of the Australian Council of Businesswomen. Continuing this theme at Westpac, she has been responsible for introducing paid maternity leave and work/family initiatives, which have led to Westpac being recognised as a best practice affirmative action organisation. GOVERNMENT POLICIES AND/OR PROGRAMS Hon Nick Greiner AC Nick was Premier and Treasurer of New South Wales from He is currently Chairman of United Utilities, Baulderstone Hornibrook, Nuance Global Traders and British American Tobacco. He is Senior Adviser to Salomon Smith Barney, Deputy Chairman of Stockland Trust and a Director of QBE Insurance, Brian McGuigan Wines and Castle Harlan Australian Mezzanine Partners (CHAMP) (Australia s largest private equity firm). He is also a Consultant with Deloitte Touche Tohmatsu and Clayton Utz. In the Queen s Birthday Honours List of 1994 he was awarded a Companion of the Order of Australia for public sector reform and management and services to the community. 46

54 John Hamilton Howard John is Managing Director of Howard Partners, a Canberra based public policy research and management consultancy firm established in The firm specialises in research, analysis and advice in relation to innovation and technology commercialisation, program evaluation, communication and marketing, and general management. Prior to establishing Howard Partners, John had been a Partner with Coopers and Lybrand and Ernst & Young over a ten-year period. John is an acknowledged expert in Australian public policy, public administration, public sector management and public finance. He has published widely in monographs, refereed journals and industry magazines. Mark Latham Mark is MP for Werriwa, a fast growing, outer-metropolitan electorate in Sydney s Southwest. He joined the ALP in 1979 and has held numerous Party positions, including adviser to Gough Whitlam and is currently the Assistant Shadow Treasurer and Shadow Minister for Economic Ownership, Housing and Urban Development. He has a long-standing interest in the role of governments in promoting social entrepreneurship. Publications on this subject include Social Capital (1998) and a paper The Myths of the Welfare State presented to the Institute of Public Affairs in He has also worked with Noel Pearson to develop the Cape York Partnership plan. GOVERNMENT PROGRAMS Dr Carrie Hillyard Carrie is a co-founder of CM Capital and has over 20 years experience in medical and diagnostics research. She also has significant venture capital investment expertise as a manager of the Coates Myer IIF, and currently sits on the Board of three rapidly growing biotechnology companies. Carrie also set up Bionetworks to mentor entrepreneurs and to provide advice and assistance with the commercialisation of research, business planning, licensing and intellectual property issues to small companies and academics. Carrie is on a number of Advisory Boards to State and Federal Government and is current deputy chair of the Queensland Innovation Council. Dr Jurgen Michaelis Jurgen has many years experience as a senior manager in the international lifescience industry, as well as Australian publicly funded research centres. He has a MSc in Biology, PhD in Biochemistry - both obtained in Germany - and a Graduate Diploma in Marketing Management from Macquarie University in Sydney. He is currently the Director of Bio Innovation SA, responsible for the continued implementation of the South Australian Government s strategy for the bioscience industry, Bright is the Future and for assisting South Australia to capitalise on its intellectual bioscience capital for future strategic industry growth and economic gain. Hon Syd Stirling Sydney has been the Member of the Legislative Assembly for Nhulunbuy, Northern Territory since He was elected Deputy Leader of the Opposition in February 1999 and is currently Deputy Chief Minister of the Northern Territory. His portfolios include Minister for Employment, Education and Training and Leader of Government Business. He has previously been employed by the Federal Department of Education, Employment and Training as Senior Employment Officer at Nhulunbuy ( ). He was Training Officer Darwin between , and has worked for the Queensland Department of Education, Employment and Training as Employment Officer between He has also been a Primary School Teacher at Nhulunbuy,

55 EDUCATION AND TRAINING Jan Parkes Jan was Principal of Melbourne Girls College, where girls lead and achieve, from 1995 to Her entrepreneurial initiatives included technology access for all students, developing structured leadership programs for students, establishing the first student-run Philanthropic Foundation in Australia, and setting up a Building Co-operative Society to ensure ongoing funding for buildings to meet the school s future needs. She has major interests in global change as it interconnects between educational providers and industry. Melbourne Girls College ran its first Global Conference in 2001 with 200 attendees from 5 countries. Her personal values focus on enthusiasm, entrepreneurship and excellence. Dr Michael Schaper Michael is head of the entrepreneurship and small business program in the School of Management at Curtin University, Western Australia. The former manager of a community-based small business advisory centre, he has also been involved in the startup of his own business, and actively coached and mentored many other firms. Prior to this he served as a ministerial adviser for several years, at both state and federal government level. He is the author of four books in the field of new business creation and management, and has taught in Australia, France, Hong Kong, Singapore and Malaysia. Peter Turner Peter is currently the Director of Outreach and Enterprise for ITEK Pty Ltd., the commercialisation arm of the University of South Australia. Previously, as Principal of Salisbury High School and then as Director of Enterprise and Vocational Education, Peter has led the introduction of the teaching of Enterprise Education in SA and nationally. Peter has been the designer and instigator of youth leadership and enterprise programs in several states, the most significant of which operates across all of South Australia as the High Performance Enterprise Communities initiative. This approach to benchmarking and measuring social and economic development in regions is nationally and internationally significant. Heather Worrall Heather is the Director of Staff Development and Welfare at Mount Erin Secondary College. For 12 of her 20 years in teaching, Heather has been involved in programs related to enterprise education and vocational learning. In 1998 Heather developed a program entitled Seize the Day which annually takes 35 Year 10 students selected from seven secondary schools away for a weekend to inspire and motivate them to return to their schools to develop programs involving enterprise, entrepreneurial skills, and vocational education. Whilst away, the students develop mentoring relationships with high profile industry representatives. R&D TRANSFER Mike Hollitt Mike is General Manager for Strategic Technologies with the global resources group, Rio Tinto. In his 20 year career he has specialised in the conceptualisation, development and commercialisation of new, large scale, core process technologies, working for various companies in the capital intensive lead, zinc, copper, titanium minerals, borate chemicals and, most recently, aluminium industries. After leaping the many hurdles to this type of development, several of these new technologies are now engaged in large-scale commercial operation, with two more presently in the pipeline. In his present role he provides advice on technological opportunities and threats in the general business environment, and manages selected seed developments. 48

56 Ross Horley Ross is the founder and Director of Medic Vision Ltd. Medic Vision is a technology service provider to the medical industry, focusing on the incorporation of new technology to enhance medical and surgical education at all levels including telemedicine, virtual reality and simulation. Ross background is in electrical engineering where he was a director of a leading Perth based consulting engineering practice. Ross has worked extensively throughout Asia on many innovative projects. He has since established collaborative agreements with many leading Universities, R & D organisations and medical education facilities around the globe on behalf Medic Vision. Cameron Reilly Cameron is a Solutions Specialist with Microsoft Australia, specialising in E-business solutions. From he worked in a variety of business development and project management roles at Oz , one of Australia s first Internet Service Providers. Since 1998 Cameron has worked for Microsoft Australia as an Internet technologies specialist. His current role involves managing the development of Application Integration and Supply Chain Integration solutions for Microsoft s customers. He specialises in strategies for bringing leading edge technologies from Microsoft s Research and Development and Product divisions to market in Australia, specifically relating to solutions for leading organisations in the ICT and Manufacturing sectors. COMMERCIAL AND PROFESSIONAL INFRASTRUCTURE John Bailey John is the Chairman of The Carlton Consulting Group Pty Ltd, consultants in the development of strategic competence within large corporations and government organisations. John has extensive experience in working with senior management in the development of innovative corporate strategies and for transforming organisations. John has an international reputation for his work in economic development programs in Australia, USA, Asia and Europe and has particular interests in the creation of entrepreneurial cultures and enterprising communities. He frequently lectures at many of Melbourne s finest business schools and has co-authored 15 books. All his interests support small business and entrepreneurial activity. Julian Little Julian is the Strategic Development Director for the On Q Group. The On Q Group is an e-commerce service provider that creates software applications, develops new e-commerce products, and delivers management and call centre services. Julian ran his own company acting as the NSW Agent for On Q prior to merging his business with the On Q Group in As the Director responsible for Strategic Development, Julian has been instrumental in the development of new markets and business opportunities across the breadth of the Group s products and services. Maurizio Zappacosta Maurizio is a certified practicing accountant and has been a sole practitioner since His firm employs 10 people and specialises in assisting a large portfolio of small to medium sized enterprises. Maurizio has extensive experience in business and tax planning. He holds a Bachelor of Business and Master of Entrepreneurship and Innovation and is a member of the Society of CPA s and is a registered tax agent and company auditor. Maurizio has a personal interest in business planning and advising clients on how to grow and develop their business by teaching clients to improve their top line rather than just focusing on compliance. 49

57 BARRIERS TO ENTRY/INTERNAL MARKET OPENNESS Andrew Kay Andrew is the Managing Director of International Concert Attractions Limited (ASX code: ICP), Australia s only live entertainment company listed on the Australian Stock Exchange. ICP are major producers and presenters of live entertainment in the Asia Pacific region, as well as in the United Kingdom and North America. ICP s three divisions, concert, theatrical and children s, present a diverse range of attractions including Hi-5, David Helfgott, The Royal Shakespeare Company production The Hollow Crown, Buena Vista Social Club and The Grimethorpe Colliery Band. Andrew is also Vice President of the Australian Entertainment Industry Association (AEIA), Australia s peak employer representing the entertainment industry. Kenneth Swan In 1983 at 23 years of age Kenneth started his first business Megaprint Systemised Screenprinting, a t-shirt screenprinting business. Over the past 19 years the business has printed more than 15 million garments, which has secured their leadership in the Sydney market. Kenneth s second business, 24-Hour T-shirts, was launched along side Megaprint in 1995 specialising in quick turnaround printed and embroidered garments. His third business was Doolagahs Indigenous Design, launched in 1997, an aboriginal Surf Design Surf Range to wholesale to surf retailers which failed due to inadequate market research. A valuable lesson for a driven entrepreneur who never gives up! ACCESS TO PHYSICAL INFRASTRUCTURE Tony Papas Tony was one of the founding partners of The Bayswater Brasserie in Sydney, in Over the past 20 years Tony has played a role in improving the food and comfort for diners, as well as keeping the partners excited. The Group has also gone onto open The Boathouse on Blackwattle Bay. Tony then developed a range of breads for his restaurants, which has now become The Brasserie Bread Co. He has also been instrumental in bringing Allpress Espresso to Sydney, and creating a new roastery. Tony not only has a wealth of hospitality experience but has also secured his role as a serial entrepreneur satisfying the needs of the restauranting public. Geoff Thomas Geoff is the Chief Executive Officer for Playford Capital in Adelaide. He has worked in high technology for over 15 years, principally with Vision Systems. Geoff held a number of engineering and general management roles in Vision s Defence division, and was a major part of its growth from seven staff to 180. Since he joined Playford Capital in January 2001, it has secured $10 million of funding from the Federal Government s BITS program, and is making seed and early stage equity investments. CULTURAL AND SOCIAL NORMS Ian Dicker Ian worked for Pacific Dunlop Ltd for over thirty years. For 15 of those years he was Managing Director of Ansell International, a world leader in surgical gloves, condoms and industrial and consumer gloves. Since 1990 Ian has been the owner and Chairman of Steritech Pty Ltd, which operates sterilisation plants in Melbourne and Sydney. Ian joined the Hawthorn Football Club Gold Pass Group in the 1970 s and was appointed President of the Club in December He is the past President of The Athenaeum Club, and a former International Director of the Young Presidents Organisation. 50

58 Amanda Ellis Amanda is Head of Women s Markets and National Manager for Women in Business at Westpac, which is the only Australian bank with a dedicated Women in Business unit. Amanda is an economist who has specialised in international trade and development economics, previously working at the OECD in Paris and the United Nations in Geneva. Amanda s special interest is helping to educate women about financial independence. Her book Women s Business Women s Wealth was released in July 2002 by Random House. Amanda is a regular judge of the annual Australian Businesswomen s Awards and is currently the chair of the Global Banking Alliance for Women and serves on many other boards. George Piggins AO George is a self-made man from a working class background. From an early age, he excelled at sport, joining the Mascot Rugby League Club at age nine. By age 19, he was playing for South Sydney Rabbitohs, the start of a lifelong association with that club. George won premierships with Souths and played for Australia in He later coached Souths first grade side, winning coach of the year twice, then became Club President in He led the fight to return the Rabbitohs to the National Rugby League competition after unfair exclusion in October 1999, and, in 2002, was awarded the Order of Australia for his efforts. Alan Ramadan Alan is the Australian who built Quokka Sports into a $US 1 billion company. Time Magazine recognised him as one of the top 50 Time Digital Cyber Elite. He began his career at BHP involved in the development of innovative real time decision support systems and the implementation of TQC processes and techniques across the works. He then founded two software development companies before heading Fluid Thinking the technology company behind John Bertrand s Americas Cup Campaign in Alan is currently a board member and consultant at Macromedia Inc., one of the leading Web software companies. Dr Fiona Stewart Fiona is a communications sociologist. A Research Fellow at various Australian Universities, she has won prestigious research grants and has consulted to the World Health Organisation. After 10 years in Academe, Fiona established her own consulting company, where she worked with dot coms and blue chip companies, providing advice/ strategy in the areas of online research and elearning. The consumer website NotGoodEnough.org leverages Fiona s professional research and media skills, while providing a valuable and valued service to consumers and corporate clients alike. Fiona also has a noted track record as a rabble-rouser on the opinion pages of Australia s broadsheets. SOCIAL ENTREPRENEURSHIP Attracta Lagan A professional sociologist, Attracta has 15 years experience working with the Boards and senior managements of most of Australia s blue chip companies and government enterprises. She has gained a reputation for directness and insightful inquiry and her work has added considerable depth to the understanding of business ethics, sustainability and corporate citizenship in Australia. Her role as National Director of KPMG Ethics & Sustainability Advisory Services revolves around helping corporations address the new social, environmental and ethical accountability of sustainable business development. She is author of over 50 published articles and a management book on business ethics, Why Ethics Matter: Business Ethics for Business People. Alistair Mant Alistair is an international authority on leadership development and executive talent identification. He was born in Australia and spends a third of each year working with private and public sector clients in Australasia. As executive coach, he has a special practice in the public/private grey area (values-driven companies and businesslike government) which is a fertile ground for social entrepreneurship. His latest book Intelligent Leadership was published in Australia in 1997 and was an immediate best-seller. He is an Adjunct Professor at the Swinburne University of Technology in Melbourne, specialising in enterprise and innovation. 51

59 Richard Pratt AC AO Richard is the Chairman of Visy Industries, a privately owned Melbourne based packaging and recycling company founded by his parents in Under Richard s leadership since 1969 Visy has expanded dramatically and now operates more than 100 manufacturing facilities in Australia, New Zealand and the USA. In 2001 Visy acquired Southcorp Packaging Australia, now named VisyPak, adding more products to its core corrugated packaging business. Through the Pratt Foundation, Richard and his family are among Australia s major private philanthropists. Richard was also Foundation Chancellor of Swinburne Univesity and holds Honorary Doctorates from Monash University and Swinburne University. Peter Quarmby Peter has been the General Manager of Access Community Group Inc, Corrimal since April Since 1987 Peter has held a number of management positions and has been a director and/or chairman of various community and public boards. Peter was instrumental in the establishment of Regional Development Australia Ltd, the company that created Australia s first regional superannuation fund with the aim of promotion investment into regional communities. Peter has worked in the Community Sector for almost 20 years and is currently co-ordinating the establishment of the Community Sector Bank, the purpose of which is to increase the capacity of the Community Sector. INDIGENOUS ENTREPRENEURSHIP Lenore Dembski Lenore is Kungarakan and has extensive experience in the public and private sectors. She is a fashion designer and in October 1997 opened Paperbark Woman, which sells her clothes and the work of Indigenous textile designers. Lenore is also employed by the Aboriginal and Torres Strait Islander Commission in the staff development and human resource area. She is chairperson of a research centre at Northern Territory University and is on the ATSI Arts Board of the Australia Council. Previous committee work has included Aboriginal legal aid and medical services and employment, education and training boards at the state and national level. Noel Pearson Noel works in a voluntary capacity as Team Leader of Cape York Partnerships, a project negotiated between the Queensland Government and Aboriginal leaders of Cape York. Noel s work on Cape York Partnerships draws widely on his thoughts on breaking down passive welfare dependency amongst Cape York Aboriginal people, by reinstating the rights of Aboriginal people to take responsibility for their lives. Descriptions of these ideas can be found in Pearson s recent monograph Our Right to Take Responsibility (self-published, 2000), as well as his Light on the Hill Ben Chifley Memorial Lecture (Bathurst, 2000) and his Charles Perkins Memorial Oration (Sydney University, 2001). Richard Trudgen In 1973 Richard volunteered for twelve month s work with the Yolnu people of Arnhem Land as a fitter/mechanic. The Indigenous people and their plight interested him so much that he took up community development work, spending the next 11 years learning deeper levels of their language, laws and ways. He spent the next 8 years running his own business and then responded to a request from Yolnu leaders to put together a team that would use methodologies aimed at demystification or problem solving education. This educational approach is now used in all areas of health education from HIV to chronic disease, as well as the areas of commerce, economics and law. The philosophy is expressed in his book Why Warriors Lie Down and Die. Paul Wand Paul is the Director of Wand Associates, the family company formed in 2000 following Paul s retirement from full-time salaried employment. As well as general consultancy work, Paul is the Chairman of the Rio Tinto Aboriginal Foundation. This is a partially independent body that works with Aboriginal communities and organisations and expends $1.4 million annually to support projects all over Australia. Paul has also worked as a consultant to the Federal Department of Employment, Workplace Relations and Small Business in promotion of Indigenous employment. In June to September 2001, Paul led the Wand Review of native title claim processes in Western Australia. 52

60 Appendix 2 Sensis TM GEM Australia, 2002 Research Team Kevin Hindle Team Leader The Australian GEM team is headed by Professor Kevin Hindle, Director of Entrepreneurship Research at Swinburne University of Technology. He is a researcher, an educator and an experienced management consultant, whose variety of expertise and interests embrace many aspects of managing in conditions of uncertainty. His work has focused on entrepreneurial business planning but is multi-disciplinary, including: financial modeling, marketing research, change management, organisational design, and management training. Kevin is the author of many internationally published research papers and co-author of Australia s leading textbook on entrepreneurship. He has developed numerous award and short courses in entrepreneurship and has taught in several countries. He has held visiting professorships in Entrepreneurship at Baylor University (Texas) and at INSEAD (Fontainebleau, France). He has a strong commitment to Indigenous entrepreneurial research. Susan Rushworth Project Manager Susan Rushworth joined the Division of Entrepreneurship Research at Swinburne University in September 1999, after a career of almost fifteen years in IT. Her interest in entrepreneurship stems from the Master of Entrepreneurship and Innovation (MEI) program offered by Swinburne s Australian Graduate School of Entrepreneurship which she completed in She also holds an honours degree in Mathematics from the University of Durham in England. Susan has acted as project manager for GEM Australia for the last three years. She also conducts many of the interviews, analyses interview and survey findings and is co-author of this year s report and previous years reports. Deborah Jones Research Assistant Deborah acted as the Research Assistant for GEM Australia securing and conducting some of the interviews, liaising daily with the key experts and processing the associated administration. Deborah has a Bachelor of Commerce (Eco & Marketing) from Melbourne University and a Masters of Entrepreneurship and Innovation (MEI) from the Graduate School of Entrepreneurship, Swinburne. Deborah has extensive skills in business development and optimisation, marketing, implementing change and project management. She has a broad range of industry experience gained through working for large companies and family businesses across many industries in various growth phases from start-up opportunities to multi-national corporates. INTERSTATE INTERVIEWERS WA George Aslanis George is a graduate of Swinburne s MEI program (see below). He has taught entrepreneurship at two Victorian high schools, helped run the New Enterprise Incentive Scheme for the Australian Greek Welfare and, as part of his Masters thesis, developed a new approach to screening new venture opportunities. He is a passionate believer in the entrepreneurial cause and is the Western Australian representative of the Venturelink Network. SA Peter Balan Peter is the Australian Project Manager for the Harmony project, a major European Union project that is developing an operations and management system for business incubators and technology accelerators. He was formerly Foundation Director of UniSA s Centre for Development of Entrepreneurs when he developed courses on entrepreneurship and business creation (based on the FastTrac program) and conducted courses at the undergraduate and PhD levels. QLD Rebecca Loudoun Rebecca Loudoun is a Lecturer in Industrial Relations at Griffith University. Rebecca has extensive experience as a research consultant, educator and researcher on business issues. Over the past decade Rebecca has completed a PhD in management and published both internationally and nationally. Her academic interests focus on the impact of Federal and State industrial relations policy on human resource practices at the workplace level. THE UNIVERSITY Swinburne s motto and mission is The Entrepreneurial University. Its Australian Graduate School of Entrepreneurship is home to Australia s longest-running and largest program of structured entrepreneurship education, the Master of Entrepreneurship and Innovation (MEI). Its MBA, DBA and PhD programs are all focused on entrepreneurship. The MEI program is also delivered under licence in Tel Aviv at the Israel School of Enterprise Management and Innovation, for which Swinburne won an export award. 53

61 Appendix 3 GEM Australia Principal Sponsor SENSIS PTY LTD The first step in every Australian contact connecting businesses, people and places. Sensis is a leading Australian information, advertising and directories provider. Through the iconic brands of Yellow Pages and White Pages, leading location and navigation brand, Whereis, the recently-acquired CitySearch brand, and the overriding brand of Sensis, we provide a broad range of products and services aimed at small and medium enterprises (SMEs), government and corporates. As Telstra Corporation Limited s wholly owned subsidiary and advertising provider, we are an integral part of Telstra, being a core element of its future growth strategy. Sensis spans directory and non-directory advertising, complemented by business services and applications. Sensis collects a breadth and depth of information that is critical to our customers and users and applies it across a number of applications, including traditional printed directories, online applications, voice and wireless application protocol (WAP). Through the online and print White Pages and Yellow Pages directories, the Electronic White Pages directory, the CitySearch online site, and the voice operated Yellow Pages Connect service, we provide more than 400,000 business customers with the opportunity to advertise their products and services to people and other businesses throughout Australia. Via the many different applications through which this information is provided, we enable people to access information easily, providing them with new and innovative ways to keep in touch with the businesses and people they need, wherever and whenever they need it. Whether accessing information by phone, the Internet or the printed directories, we aim to have our customers information always at the fingertips of our users. And, of course, through helping ensure our customers information is accessible by the right people their customers we continue to build deeper and mutually rewarding relationships with our customers and users. Sensis employs more than 2,200 people across Australia, consisting of approximately 900 sales staff, including around 180 dedicated online sales consultants. It has offices in Victoria, New South Wales, Queensland, Western Australia, South Australia, Tasmania and Queensland. Small and medium enterprises are the lifeblood of the Australian economy, representing 99 per cent of all businesses nationally. They are also fundamental to Sensis, equating to approximately 90 per cent of our customers today. Given the importance of small and medium business to the Australian economy and Sensis, we deliberately focus the majority of our corporate support and sponsorship activities on small and medium enterprises and innovation. In addition, through a combination of formal research and established relationships with small and medium enterprises, we seek continually to understand better small and medium enterprise needs and demands, the way they operate, and the challenges and issues they face. Much of our research provides valuable intelligence to government and other stakeholders for formulating policy and actions that can facilitate a more conducive business environment for small and medium enterprises. For more information, visit Sensis Pty Ltd Head Office: Victoria Parade Collingwood, VIC 3066 Australia Tel: (03) and Registered trade mark and trade mark of Telstra Corporation Limited (ABN ). CitySearch and CitySearch logo are trade marks of CitySearch Australia Pty Ltd (ABN ). Sensis Pty Ltd (formerly Pacific Access Pty Ltd ABN ) is responsible for the conduct of certain activities relating to Yellow Pages, White Pages, GoEureka, Whereis and related products and services for Telstra Corporation Limited and is responsible for the conduct of similar activities relating to CitySearch products for CitySearch Australia Pty Ltd and CitySearch Canberra Pty Ltd (ABN ). All references to Sensis (or we ) or to Sensis (or our ) products, services, brands or company should be construed accordingly. 54

62 Appendix 4 GEM Australia Methodology The purpose of this appendix is to give detail about the data collection methodology that would interrupt the flow if included in the main body of the report and might not be of interest to some readers. GEM uses many data sources, three of which involve primary data collection by, or on behalf of, the GEM research teams in each country. Each of these is described in detail below. THE NATIONAL POPULATION SURVEY SURVEY METHODOLOGY GEM s first major area of investigation What are the differences in the level of entrepreneurial activity between countries? is addressed through a national population survey in each country, with a minimum of 2,000 respondents. Countries may choose to pay for a larger sample, to achieve lower variability. All national population survey data collection and checking is coordinated by the GEM coordination team in London. The aim is to produce, within and across nations, the most reliable benchmark data within the cost constraints of the project. In 2002, the survey was conducted by New Zealand company Digipoll Ltd. It was carried out in June. In 2002, the sample size of the Australian population survey was increased and the sampling approach modified. When comparing groups, the reliability of each group s results depends on the number of respondents in each group. In other words, if you wish to have equally reliable results for New South Wales and Tasmania, you must survey as many residents of Tasmania as residents of New South Wales. Thus the sample size was increased to 3,000 adults and the sample was stratified to obtain an equal number of respondents in each Commonwealth State. Northern Territory was grouped with South Australia and the Australian Capital Territory with New South Wales, giving six states with 500 respondents per state. This approach allowed more reliable comparison of results between states. To illustrate: a random sample of 3,000 respondents resulting in a positive response for 10 percent of the population would have a sample variability (confidence interval) of plus or minus 1.1 percent at the 95 percent confidence level. A survey of only 500 respondents resulting in a 10 percent proportion of positive responses would have a confidence interval of plus or minus 2.6 percent. The actual proportion obtained (after appropriate weighting) for Total Entrepreneurial Activity (see below) in this year s survey in Australia was 8.7 percent, resulting in a confidence interval of plus or minus 1.0 percent. Proportions for states varied from six percent to 12 percent, resulting in confidence intervals varying from plus or minus 2.1 percent to 2.8 percent. Had the number of respondents surveyed per state been in proportion to each state s percentage of the total population of Australia, only about 75 Tasmanians would have been surveyed and the results for Tasmania (where the TEA score was just over six percent) would have had a confidence interval of plus or minus 5.4 percent too large for any meaningful comparison. An oversample of 300 was taken for Queensland, giving a target survey population of 3,300. The actual number of adults surveyed was 3,378. Results were weighted to compensate for over-representation by sex, age range and geographic location. KEY ENTREPRENEURIAL ACTIVITY INDICATORS The key indicators of entrepreneurial activity measured by the survey are: participation in genuine business start-ups (paying wages no longer than three months); participation in new firms (firms less than 42 months old at time of survey, i.e. established in 1999 or later); and participation in business angel investment. The first two of these participation rates are combined to form an index of Total Entrepreneurial Activity (TEA). Respondents involved in both a start-up and a new firm are counted only once in the combined index. TEA is best thought of as an index for comparing the relative performance of countries, rather than an actual event that happened. To measure participation in new venture creation, the questions asked were: 55

63 1. You are, alone or with others, currently trying to start a new business, including any type of selfemployment; and 2. You are, alone or with others, trying to start a new business or a new venture with your employer an effort that is part of your normal work. A response of Yes to either of the above led to three supplementary questions to determine whether the venture was a genuine start-up. These were: a) Over the past 12 months, have you done anything to help start this new business, such as looking for equipment or a location, organising a start-up team, working on a business plan, beginning to save money, or any other activity that would help launch a business? b) Will you personally own all, part or none of this business? c) Has the new business paid any full-time salaries or wages, including your own, for more than three months? A yes response to a) all or part to b) and a no response to c) were required for the respondent to be classified as a genuine start-up participant; i.e. they had to be active in the business and expect to own at least part of it. Yes to a), b) and c) indicated a potential new firm participant. Participation in new firms was measured by the response to the statement You are, alone or with others, the owner of a company you help manage. Respondents who answered yes to this question and whose business had first paid wages in 1999 or later were classified as new firm participants. Respondents who said they had not yet paid any wages were reclassified as start-up participants. REVISION OF POINT ESTIMATES IN A LONGITUDINAL STUDY In any given year, GEM may be regarded as a crosssectional study. But, over time, a longitudinal database is accruing. From time to time it may be necessary, in the interests of the longitudinal perspective, to retrospectively adjust data. Such a situation applied to Australia in A population census was conducted in 2001, but the results were not released until When calculating weightings for respondents to the 2001 survey, it is clearly more accurate to use the results from the 2001 census than from the previous census five years earlier. Consequently, new weightings were calculated for Australian 2001 survey data, which led to revised scores for TEA and other entrepreneurial activity indicators. For example, Australia s overall TEA score for 2001 was revised from 16.2 to 15.5 percent. DEPTH INTERVIEWS OF NATIONAL EXPERTS Each GEM national team selects a minimum of 18 experts in entrepreneurship and conducts an in-depth interview with them. The experts are chosen for their knowledge and experience of the nine entrepreneurial framework conditions listed in the GEM theoretical model. The nine frameworks are: Financial Support: availability of financial resources, equity, and debt, for new and growing firms including grants and subsidies; Government Policies: the extent to which government policies as reflected in taxes, regulations and their application, are either size-neutral, discourage, or encourage new and growing firms; Government Programmes: the presence of direct programs to assist new and growing firms at all levels of government national, regional, and municipal; Education and Training: the extent to which training in creating or managing small, new, or growing business is incorporated within the educational and training systems at all levels; and the quality, relevance and depth of such education and training; Research and Development Transfer: the extent to which national research and development will lead to new commercial opportunities and whether or not R&D is available for new, small, and growing firms; Commercial and Professional Infrastructure: the extent of the presence of commercial, accounting, and other legal services and institutions that allow or promote the emergence of new, small, or growing businesses; Market Openness/Barriers to Entry: the extent to which commercial arrangements are prevented from undergoing constant change and re-deployment, preventing new and growing firms from competing and replacing existing suppliers, subcontractors, and consultants; Access to Physical Infrastructure: ease of access to available physical resources- communication, utilities, transportation, land or space-at a price that does not discriminate against new, small, or growing firms; and Cultural and Social Norms: the extent to which existing social and cultural norms encourage, or do not discourage, individual actions that may lead to new 56

64 ways of conducting business or economic activities and, in turn, lead to greater dispersion in wealth and income. The GEM Australia team aims to interview twice the minimum number of respondents and seeks out experts with multi-framework experience, and backgrounds that extend beyond for-profit entrepreneurial activity. Interviews are conducted face-to-face wherever possible and are always recorded. Each expert is asked what they feel are the top three weaknesses impeding entrepreneurial activity in Australia, the top three strengths supporting entrepreneurial activity in Australia and to suggest changes they believe would improve Australia s performance. The interview content is then classified, using qualitative analysis techniques, into the nine framework conditions, with the freedom to create new categories where comments do not fit any of the framework conditions. Extensive use is made of subcategories for example, Financial Support weaknesses might include a sub-category of problems relating to obtaining funding for early stage ventures. THE INTERNATIONAL SURVEY OF EXPERT OPINION Each expert interviewed is asked to complete a detailed survey rating a series of statements on a scale from 1 (completely false) to 5 (completely true) in the context of their own country. The survey contains a section for each of the nine entrepreneurial frameworks, plus sections assessing five other factors: existence of business opportunities, capacity (of the general population) to act on opportunities; motivation to act on opportunities; effectiveness of intellectual property protection; and support for female entrepreneurs. Each section contains five or six questions. The results of these surveys are summarised by country at individual question level and at section summary level. This allows expert opinion to be compared between countries. A similar approach is used for the World Competitiveness Yearbook assessment (WCY 2002). SECONDARY SOURCES The GEM coordination team provides a database of standard secondary data (for example rates of GDP growth) from sources such as the International Monetary Fund, the World Bank, the World Economic Forum. This ensures that all teams are using the same sources for important economic indicators and other national information (such as population, labour force etc) and optimises use of GEM human resources. Additional Australian sources are also used to supplement the GEM data. One important such source is the Australian Bureau of Statistics. It is the most complete source of information about the characteristics of businesses in Australia. The quarterly Yellow Pages Business Index Small and Medium Enterprises provides a valuable snapshot of the confidence and perceptions of Australian SMEs. Relevant reports from other sources, both national and international are used whenever they can add insight to the GEM findings. LIMITATIONS Like every study, GEM has its limitations. The most obvious one is that entrepreneurship is difficult to measure, especially on a large scale and with consistency between 40 countries, speaking many different languages. The quantitative element of GEM therefore concentrates on measuring an activity that is commonly understood across all nations and cultures: owning and operating a business. While many of the businesses identified by the survey will not be entrepreneurial in intent, starting a business is a prerequisite for a genuinely entrepreneurial new venture and thus provides a useful baseline. The set of experts interviewed in depth changes from year to year. It could be argued that it is not valid therefore to compare either aggregate survey ratings or interview key issues from year to year. This is mitigated by the requirement to choose experts from specific backgrounds, consistent with the nine entrepreneurial framework conditions. In practice, the survey scores from Australian experts have been highly consistent from year to year and, where there has been a change, it is consistent with comments made in the interviews that a particular factor has improved or deteriorated. Finally, there is the limitation of selecting from the many and interesting insights offered by the GEM data and the national experts which ones to include in the yearly report. There is scope to dig deeper into both the GEM data and the expert interviews. The GEM Australia team welcomes enquiries from anyone interested in doing so. 57

65 Acknowledgments To the following people and organisations we give our sincere thanks. To our principal sponsor, Sensis Pty Ltd, whose continued support demonstrates the critical importance of entrepreneurship research is not lost on corporate Australia. Supporting a team of independent research requires a combination of trust, perseverance and a commitment to the public good provided by high quality projects such as GEM. Particular thanks are due to Felicity Hand, Director, Business Commercialisation & Corporate Communications, for her unwavering faith in the project and Natalie Mina, Communications Manager, for her magnificent can do style of project management. To our research assistant, Deborah Jones, on whose efficiency, and ability to subdue the most ferocious of administrative crocodiles while retaining a sense of humour, we so often depended. To our interstate co-researchers: George Aslanis in Perth, Peter Balan in Adelaide and Rebecca Loudoun in Brisbane, and to Christopher Heckenberg, who conducted several of the Indigenous entrepreneurship interviews, for extending our research team so effectively and seamlessly. To the organisations that supported the extension of this year s adult population survey: The Queensland Department of Innovation and Information Economy ( The Victorian Department of Innovation, Industry and Regional Development ( and Playford Capital Pty Ltd ( in South Australia. To the interviewees from previous years of GEM Australia who demonstrated continued support for the project by completing the expert survey again this year. To the Australian entrepreneurship community who responded with such interest and enthusiasm to the previous two year s reports and affirmed the value of the project. The Sensis TM GEM Australia, 2002 is only possible thanks to the enormous amount of work done by the GEM mission control team who coordinate the research, supervise the conduct of the adult population data, collate and clean the data, gather and organise data from secondary sources, and provide the results to each of the GEM national teams in a consolidated data set. The Australian team extends their particular thanks to: Professor Paul Reynolds, Professor Michael Hay, Professor Bill Bygrave, Professor Erkko Autio, Dr Isabelle Servais, Dr Stephen Hunt and, last but not least, our former and much-missed colleague Natalie De Bono. Published 2002 by Swinburne University of Technology John Street, Hawthorn, Victoria 3122, Australia Design and layout by Swinburne Press Art Department John Street, Hawthorn, Victoria 3122, Australia Printed and bound in Australia by Artways Not for sale Distribution and availability: Web Address: Sensis Pty Ltd (Phone: , Fax: ) Australian Graduate School of Entrepreneurship (Phone: , Fax: ) National Library of Australia Cataloguing-in-publication data: Sensis TM GEM Australia 2002 ISBN

66 and Registered trade mark and trade mark of Telstra Corporation Limited (ABN ). Sensis Pty Ltd (ABN ) has responsibility for production of Yellow Pages and White Pages directories and related products on behalf of Telstra Corporation Limited.

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