Comparative perspectives on regulating and supporting international entrepreneurship Jolanda Hessels Erasmus School of Economics, Erasmus University Rotterdam Panteia/EIM 24 October 2012
Current economic situation Netherlands Table 1 Macro-economic indicators (% change per year) 2012 Gross domestic product (ec. Growth) -0.8 Household consumption -0.5 Consumer Price Index (CPI) 2.5 Unemployed labor force 5.3 Bruto business investments -3.8 Export (domestically produced) 1.8 Source: CPB, 2012 Recovery growth due to rise foreign demand
Perspectives/position Dutch entrepreneurs Decline share entrepreneurs with confidence economic development Nls (53% 2011; 20% 2012) Entrepreneurs more negative about economic development own business Decline confidence in economic policy (from 38% in 2011 to 23% in 2012) Entrepreneurs of smaller firms stay behind because of strong focus on domestic markets Importance of international entrepreneurship
Internationalization by Dutch entrepreneurs About one in three small businesses involved in some form of internationalization Import most common (30% in 2012), followed by export (23% in 2012) Foreign direct investments least common (5% in 2012), mostly combined with import or export International cooperation (13% in 2010), mainly with foreign firms abroad Majority small businesses not internationally active
Success factors international entrepreneurship (1) Ability to recognize and pursue profit opportunities: Kirzner (1973): Entrepreneurs are needed to exploit opportunities that are already out there Importance of alertness, (superior) judgement Sometimes simple arbitrage
Success factors international entrepreneurship (2) Access to relevant knowledge and information: Importance of human capital (knowledge, skills, experience) of entrepreneur, but also of employees Building on existing information and learning/acquiring new information Use of networks, cooperation with other firms, foreign partners
Success factors international entrepreneurship (3) Innovation: Schumpeter (1934): Entrepreneurs bring economic development by doing something new Introducing new products/services, new methods of production, entering new markets Continuously trying to stay ahead of competition (risk of imitation)
Success factors international entrepreneurship (4) Ability to manage risks: Growing in a way that is manageable Being succesful in securing financial capital Finding reliable trading partners and being a reliable partner Taking incremental steps e.g. build on existing competences, gradually increase international involvement
Dutch international entrepreneurship policy Some recent changes: Focus on economic diplomacy, market openness Less subsidies Help small businesses to start internationalization Focus on promising sectors and countries: 9 top sectors (e.g. water, chemicals, logistics, agri & food, energy) businesses that wish to operate in emerging markets Attracting foreign investors and knowledge migrants
Policy intervention Economic rationale for policy support stems from market and system imperfections: Transactions that are desirable from a socialeconomic standpoint are not taking place Social benefits do not occur since private parties only take into account private benefits
Support international entrepreneurship Market/system imperfection: Foreign government interventions (financial support for national firms or import tariffs/quota s) that hinders market access Instrument: Economic diplomacy to reduce trade and investment barriers e.g.: - Partners for International Business (for groups of firms that wish to jointly enter a foreign market) - One access point for entrepreneurs to announce trade distortions ( Meldpunt handelsbelemmering )
Support international entrepreneurship Market/system imperfection: Imperfect/assymetric (incomplete/dissimilar) information of market parties Instrument: Help finding information/advise e.g.: Starters International Business (internationalization voucher to cover cost for market research in promising markets) Package4Growth (facility to hire external advisor for doing business in China, India or Brazil) Online provision of information about specific foreign markets, financing possibilities etc.
Support international entrepreneurship Market/system imperfection: Non insurable risks and financing problems (difficulty in ensuring finance and guaranteeing legal safeguards) Instrument: Export Credit Insurance by the State e.g. for very large transactions, or transactions with a long duration or with unstable countries
Support international entrepreneurship Market/system imperfection: Positive external effects may exist (e.g. when parties benefit from investment decisions of others through knowledge spillovers) but do not automatically take place since private parties do not take social benefits into account Instrument: Encourage cooperation e.g.: Facilitate networks among internationally active firms Eurostars subsidy for international market-oriented R&D
Support international entrepreneurship Market/system imperfection: Public goods and services (e.g. education, good public image) may benefit society as a whole but are not or to a limited extent provided by the market Instrument: Provision of public goods related to internationalization: Teaching entrepreneurship, languages and international business Strenghtening country image abroad
Challenges Many challenges for the years to come e.g.: Supply of entrepreneurs with quality and ambition to internationalize and grow Need for qualified employees Securing access to finance for international entrepreneurs