Global Entrepreneurship Monitor, The Ira Center for Business, Technology & Society " Sami Shamoon College of Engineering ATEC Advanced Technology Encouragement Center GEM 2010 Israel National Entrepreneurship Report Ehud Menipaz Yoash Avrahami Harel Yedidsion Miri Lerner GEM Israel 2010 Report ehudm@bgu.ac.il The English version The Ira Center for Business, Technology and Society Ben Gurion University Reger Blvd. Beer Sheva 84105 ISRAEL 2011 by the Ira Center for Business Technology and Society, Ben Gurion University Following the compilation of the report, several changes were made to the data base that might have affected some observations. It is the considered opinion of the authors that the observations contained in this report are not materially affected by these changes. Furthermore, the national report will contain a section presenting the comparative findings using the adjusted data.
2 Table of Contents List of Figures...4 List of Tables...6 Acknowledgments...7 Foreword...8 Executive Summary...9 1.. Introduction...10 1.1. Definition of the GEM study concepts...10 1.2. About the study...11 1.3. Objectives of the study...11 1.4. The participating countries in 2010...11 1.5. The GEM study team in Israel...12 2.. Research methodology...13 2.1. Collecting the study data...13 2.2. Revised GEM model...13 3.. Principal Findings of The GEM Global Study for 2010...15 Entrepreneurship Relative to Development Levels...15 GEM Global Report 2010: Selection of Principal Findings...16 4.. GEM 2010 Israel National Report...17 4.1. Principal Findings...17 4.2. Characteristics of entrepreneurship in Israel 2010...18 4.3. Entrepreneurship by population segment...20 4.4. Impact of global economic crisis on Israel s entrepreneurial activity...21 4.4.1. Business closures in Israel...22 4.4.2. Impact of economic global crisis on Israeli entrepreneurs perceptions: Opportunities for Starting and Growing a Business Compared to One Year Ago...24 4.5. Entrepreneurship with high expectations of rapid growth...26 4.6. High Growth and Job Expectations in 2010 among TEA and EB Israeli Entrepreneurs...27 4.7. High- and medium-technology entrepreneurship 2010....30 4.8. Innovation in products and services and applying new technologies...32 4.9. Targeting of export and global deployment by new businesses...33 4.10. GEM 2010 measurement of attitudes and perceptions relating to entrepreneurship...38 Perceived Opportunities and Capabilities...38
3 Fear of Failure Perceptions...39 Entrepreneurial Intentions...40 Entrepreneurship as a good career choice...40 4.11. Characteristics of angel investments in Israel 2010...42 4.12. Higher education in Israeli population by gender and population segment...45 4.13. Demographic characteristics of entrepreneurship in Israel 2010...47 4.14. Characterization of Israeli entrepreneurs patterns of seeking advice through networking...49 5.. Conclusions and Implications...52 Bibliography...54 Appendix 1 GEM National Teams 2010...55 Appendix 2 The People Behind the Study...62
4 List of Figures Figure 1: Figure 2: Stages of Entrepreneurial Activity: Process and GEM Operational Definitions...13 GEM Revised Model...14 Figure 3: Total Entrepreneurship Activity (TEA) Rates and GDP per capita 2010...15 Figure 4: TEA Entrepreneurship Rates among GEM Innovation-Driven countries 2010....19 Figure 5: GEMIL10 -% TEA versus % business exit ratio in Israel, 2008-2010...23 Figure 6: GEM Israel 2010: Mean of business exits in Israel versus GEM countries 2008-2010...23 Figure 7: Impact of economic global crisis on Israeli entrepreneurs perceptions in 2009-2010...24 Figure 8: Percentages of total early-stage entrepreneurs who find starting a business now more difficult than a year ago 2009-2010...25 Figure 9: GEM 2010: TEA Job expectations among 60 GEM countries 2008-2010...25 Figure 10: High Growth and Job Creation Expectations versus TEA and EB Entrepreneurial Rates, 2007-2010....27 Figure 11: TEA High growth and job creation expectations (more than 10 employees and over 50% growth within next 5 years) in 2010. Israel compared to other GEM Countries....28 Figure 12: EB10 High growth and job creation expectations. Israel compared with innovation-driven countries plus a few other selected countries...29 Figure 13: TEA10 Entrepreneurs expecting more than 5 employees within next 5 years. Israel among 60 GEM countries...30 Figure 14: Innovation for early-stage entrepreneurship activity, 2008 2010...32 Figure 15: Percentages of GEM10 innovation-driven countries TEA entrepreneurs using the very latest technology available since last year...33 Figure 16: GEM IL10: Mean TEA Export: more than 50% customers outside country...34 Figure 17: TEA10 Innovation-driven countries, with 76%-100% customers outside country...35 Figure 18: EB10 Innovation-driven countries, with 76%-100% customers outside country...35 Figure 19: TEA Export: % customers outside country 2008-2010...36 Figure 20: % Perception of capabilities and opportunities in Innovation-Driven countries. GEM 2010 population age 18-64...39 Figure 21: GEM IL 10: How Israeli population segments perceive fear of failure. Entire adult population (age 18-64)...40 Figure 22: Equality perception in Israel by population segment and gender in 2010...41 Figure 23: Business angels in Israel 2010 by population segment and gender...43
5 Figure 24: GEM 2010 Business angels in innovation-driven countries...43 Figure 25: GEM IL 2010: % of Israeli business angels by population segment and gender, as part of total angel population...44 Figure 26: Relationships of business angels with persons received their investments...45 Figure 27: GEM 2010 Innovation-Driven countries: TEA entrepreneurs level of education, at least post-secondary education...46 Figure 28: Higher education in Israeli population by segment and gender. GEM10 IL (18-64 sample)...46 Figure 29: Israel 2010 population aged 18-64 by segments. (Israel s 2010 research sample)...47 Figure 30: TEA 10 Israeli entrepreneurs by religion and population segment (%)...48 Figure 31: GEM IL 2010 TEA entrepreneurs by gender and age groups (count)...49
6 List of Tables Table 1: GEM 2010 60 Countries Classified by Economy and Geography...12 Table 2: Comparison of entrepreneurship data in Israeli population 2002-2010...19 Table 3: GEM Israel 2010 Key Indicators (%) 2007-2010...20 Table 4: Table 5: Israel 2010 TEA Entrepreneurship by Gender and Origin...21 Businesses exited by owners in the 12 months preceding the yearly GEM survey 2008-2010...22 Table 6: Israeli TEA and EB entrepreneurs perceptions of global economic crisis impact in 2010...25 Table 7: Table 8: GEM 2007-2010 TEA & EB High growth and job creation expectations. (More than 10 employees and over 50% growth in 5 years). (TEA Hjg: 20 employees or more in 5 years)...27 Israel 2010 TEA & EB high-tech entrepreneurs as % of TEA & EB entrepreneurs population by origin and gender...30 Table 9: Israel all TEA & EB businesses: % customers outside country, 2008-2010...36 Table 10: GEM Israel 2010 TEA export by population sector and gender...37 Table 11: Entrepreneurial Attitudes and Perceptions in GEM Innovation-Driven Countries in 2010 (partly revised). (Adopted from GEM global report 2010)...38 Table 12: Equality perception of Israeli population aged 18-64 in the years 2007-2010...41 Table 13: Israel s rates of business angels for the years 1999-2010...44 Table 14: GEM 10 IL: High education of Israel population 18-64 by segments...45 Table 15: GEM IL 2010: Advisory Networks of Israeli Nascent Entrepreneurs...50 Table 16: Israeli Owners-Managers Advisory Networks 2010...51 Table 17: Israeli Potential Starters and Discontinuers Advisory Networks...51
7 Acknowledgments The researchers and authors wish to acknowledge the support provided for the research by The Ira Center for Business, Technology and Society, Ben Gurion University, The Sami Shamoon College of Engineering and The Advanced Technology Encouragement Center in the Negev.
8 Foreword The Ira Center for Business, Technology and Society at Ben Gurion University in the Negev, established by the Ira Foundation, views the Global Entrepreneurship Monitor (GEM) research project as an important opportunity to expand, in a significant, systematic and profound way, our global understanding of the factors affecting entrepreneurship as an important economic and business activity. Academic institutions, governments, as well as the business community, have long recognized the importance of entrepreneurship to the advancement of national, regional and local economies. Furthermore, the role of the individual entrepreneur and nascent entrepreneurship calls for a thorough understanding, as it is related to the success rate, magnitude and sustainability of the entrepreneurial activity. The GEM project is a global, longitudinal, multiyear study of entrepreneurship and economic growth, which began in 1999 with ten countries, the G-7 as well as Denmark, Finland and Israel. Since then, about 85 countries have participated in the study, led by a consortium of world-renowned academic institutions and researchers around the world, serving as a hub for a productive academic research and public policy think tank. The objectives of the GEM project are fourfold: First, to provide an annual evaluation of the status of entrepreneurship in participating countries; Second, to construct a Global Entrepreneurship Index, in line with other business and economic global indices, such as the World Competitiveness Index (WCI) and the Economic Freedom Index (EFI); Third, to identify and analyze pubic policy decisions which may enhance entrepreneurship on a national level; Fourth, to provide entrepreneurial policy recommendations for policy decision makers. The national GEM 2010 research report reflects regional entrepreneurial rates, points to the continuing effects of the global 2008-2011 economic crisis and substantiates the growing national dissatisfaction about social and economic gaps which led to major civil protests in the summer of 2011, calling for social justice. The Ira Center, the GEM national sponsor, is named after the Israeli Air Force pilot, flight instructor and systems engineer, the late Captain Ira Lahat- Gerzberg, who was killed in 1973. An avid Zionist and a socially involved, entrepreneurial and gracious individual, Ira has left his mark on many people, his age and older. For almost forty years the Ira Foundation has led and contributed to the development of the disciplines of business management in Israel. The Ira Center for Business, Technology & Society is engaged in international collaborative academic research programs, such as the GEM research project, community outreach programs, such as the Young Entrepreneurs Israel program, and commemorative activities. The GEM 2010 research report reflects the longterm commitment of the Ira Foundation and the Ira Center at Ben Gurion University to explore unique and global research themes at the frontiers of business management. The Center applauds the GEM Israel team, the GEM Israel co-sponsors, The Sami Shamoon College of Engineering and the MATA Foundation, and the research project participants in Israel and overseas. Prof. Ehud Menipaz The Abe and Sol Krok Chaired Professor of Entrepreneurship Management Founding Chairman The Ira Center for Business, Technology and Society Ben Gurion University ehdum@bgu.ac.il +972-52-259-8276
9 Executive Summary The GEM study is an international, long-term, longitudinal study of entrepreneurship and economic growth. Sixty countries participated in the study in 2010. The project has operated consistently since 1999 as a coordinated multinational research program, providing indices for an annual evaluation of the status of entrepreneurship in the participating countries. The uniqueness of the study is that it does not analyze the new business itself, but rather studies the behavior of the entrepreneurs as individuals, in the context of starting and managing the business. The GEM study team in Israel has been operating since 2007 at the Ira Center for Business, Technology and Society at Ben-Gurion University. The national study shows that the global economic crisis is still here. New entrepreneurs and business owners are experiencing difficulties in exporting and in customer retention, are challenged by stiffening competition in the global markets, and are faced with higher entry thresholds. The evidence that the economic crisis is alive and kicking is reflected in a number of indicators, among them: a drop in the rate of start-ups, shrinking of the technological sector, a decrease in the number of overseas customers and in the volume of exports and a decline in high-growth aspirations. The Israeli Arab segment achieved a significant increase in the rate of entrepreneurship: Over the past two years (2009-2010), Arab entrepreneurs, both male and female, have outpaced Israeli Jewish entrepreneurs in Total Entrepreneurship Activity (TEA). Equality perception among the Israeli population is among the lowest in GEM countries for years. A slow rise in Israel s Equality Perception Index (EPI) over the past three years (corresponding to the period of the global economic crisis) may indicate ongoing popular dissatisfaction with the failure to reduce the inequality gap in Israeli society. This supposition is borne out by the huge social protest movement that swept the country in the summer of 2011, calling for the bridging of social gaps and an end to social injustice. In 2010 a new trend developed in the Israeli business angel community, with the Arab and Russian immigrant minorities again taking the lead in the rate of angel investments, following an absence of several years. Moreover, women in these two minority groups recorded the highest level of angel activity. During 2010, the Israeli technology sector experienced a decrease in TEA and Early Business (EB) rates. This was paralleled by a decreasing rate of use of cutting-edge technology by young businesses. Israeli government departments and affiliates have yet to find ways of studying, understanding and applying the Global Entrepreneurship Monitor (GEM) findings and insights.
10 1. Introduction 1.1 Definition of the GEM study concepts Entrepreneurship Any attempt to set up a business or business organization, expansion and modification of an existing business or the creation of an independent occupation by an individual, a team, or through an existing business. Nascent entrepreneurs The first stage in setting up a new business. These entrepreneurs, in the last 12 months, planned and acted toward the setup of a new business which was wholly or partially owned by them, and the business has paid wages or salaries for no more than three months. (The activity includes: the organization of the team, resources, equipment, location, business plans.) Some of these entrepreneurs are still engaged on a full-time basis as employees. New firm entrepreneurs The second stage in entrepreneurship. These entrepreneurs wholly or partially owned and managed a new business, which has paid salaries or wages for between four and 42 months since the date of its establishment. Total early stage entrepreneurial activity (TEA rate) The overall percentage of entrepreneurship in the first two stages: nascent businesses and new firm businesses, out of the total population of adults age 18-64. In certain cases, the TEA rate is lower than the sum of the first two stages; this happens in cases where an entrepreneur assigned himself to both stages but was counted only once. Established business (EB) Businesses owned and managed by entrepreneurs who are in a mature stage of activity and have paid wages and salaries for 43 months or more (established before 2007). Necessity-Driven Entrepreneurial Activity The percentage of those involved in total early-stage entrepreneurial activity (as defined above) who are involved in entrepreneurship because they had no other option for work. Improvement-Driven opportunity Entrepreneurial Activity: Relative Prevalence The percentage of those involved in total earlystage entrepreneurial activity (as defined above) who (i) claim to be driven by opportunity, as opposed to finding no other option for work; and (ii) indicate the main driver for being involved in this opportunity is being independent of increasing their income, rather than just maintaining their income. High Growth Entrepreneurial Activity The percentage of entrepreneurs who aspire to build a business which will employ 19 or more persons within five years of the date of the study, out of the total population of adults age 18-64. Expectation of Early-Stage High Growth Entrepreneurial Activity The percentage of entrepreneurs in early-stage businesses, out of the total number of entrepreneurs who aspire to build a business which will employ 19 or more persons within five years of the date of the study. Discontinuation rate The percentage of the total population of adults age 18-64 who discontinued a business owned by them during the 12 months which preceded the study whether by closing the business, selling the business, or ceasing to own and manage the business. (This is not an index of the rate of failure of businesses.) Perceived opportunities The percentage of the total population of adults age 18-64 (not including all of the actual entrepreneurs) who
11 see good opportunities to start a business in the area where they live. Perceived capabilities The percentage of the total population of adults age 18-64 (not including all of the actual entrepreneurs) who believe they have the know-how, qualifications and skills to start a new business. Potential entrepreneurial activity rate The percentage of the total population of adults age 18-64 (not including all of the actual entrepreneurs) who are not involved in entrepreneurial activity, but have a positive perception of their personal entrepreneurial abilities and see entrepreneurial opportunities in the area where they live. Entrepreneurial intention The percentage of the total population of adults age 18-64 (not including the actual entrepreneurs) who declare their intention of starting a new business in the course of the next three years. Fear of failure rate The percentage of the total population of adults age 18-64 (not including the actual entrepreneurs) who believe that the fear of failure will prevent them from establishing a business. Equality perception The percentage of the total population of adults age 18-64 (not including the actual entrepreneurs) who responded YES to: In my country most people would prefer that everyone had a similar standard of living. Study sample among the population of adults in Israel 2010 The main study sample included 2007 men and women from three sectors: veteran Israeli Jewish people (1245), Israeli Arabs (400), immigrants from the CIS (Russia) countries (362). In the study sample, the relative weights were attributed to each demographic and geographic component of the population of adults age 18-64 in Israel. A special separate regional sample of N=501 was conducted in the south region of Israel (Beer-Sheba region) using the same procedures. The regional sample included 338 long-time Jewish residents, 91 immigrants from the CIS countries and 72 Israeli Arabs. 1.2 About the study The GEM study is an international, long-term, longitudinal study of entrepreneurship and economic growth, initiated in 1999 with 10 countries (G-7, Denmark, Finland and Israel). In 2010, sixty countries participated in the study. The GEM Study Consortium, which was established through the initiative of researchers from the London Business School and Babson College in Boston, expanded and developed during those years into a leading international research entity, which focuses on increasing our understanding of the relationships between perceptions of entrepreneurship, active nascent entrepreneurship, and national economic growth. The project has consistently operated as a coordinated multinational research program, which provides indices for annual evaluation of the status of entrepreneurship in the participating countries. 1.3 Objectives of the study 1. To measure differences in entrepreneurial attitudes, activity and aspirations among economies. 2. To uncover factors determining the nature and level of national entrepreneurial activity. 3. To identify policy implications for enhancing entrepreneurship and to provide policy recommendations. 1.4 The participating countries in 2010 The 2010 GEM study surveyed sixty countries, whose economies were grouped into three levels: factor-driven, efficiency-driven, and innovationdriven. These were based on the World Economic Forum s Global Competitiveness Report, which
12 identifies three phases of economic development based on GDP per capita and the share of exports comprising primary goods. According to the WEF classification, the factordriven phase is dominated by subsistence agriculture and extraction businesses, with a heavy reliance on labor and natural resources. In the efficiency-driven phase, further development is accompanied by industrialization and an increased reliance on economies of scale, with capital-intensive large organizations more dominant. As development advances into the innovation-driven phase, businesses are more knowledge intensive, and the service sector expands. GEM additionally considered geographic factors, grouping countries into six geographic regions: sub-saharan Africa, the Middle East and North Africa (MENA), Latin America and the Caribbean, Eastern Europe, Asia/Pacific and the United States and Western Europe. The aforesaid economic and geographic groupings, which allow for the comparison of economies across similar development levels and geographic locations, are shown in Table 1. Factor-Driven Efficiency-Driven Innovation-Driven Sub-Saharan Africa Angola, Ghana, Uganda, Zambia South Africa Middle East / North Africa Egypt, Iran, Pakistan, Saudi Arabia, West Bank and Gaza Tunisia Israel Latin America and Caribbean Jamaica, Guatemala, Bolivia Argentina, Brazil, Chile, Colombia, Costa Rica, Ecuador, Mexico, Peru, Trinidad and Tobago, Uruguay Eastern Europe Bosnia and Herzegovina, Croatia, Hungary, Latvia, Macedonia, Montenegro, Romania, Russia, Turkey Slovenia Asia Pacific Vanuatu Malaysia, China, Taiwan Australia, Japan, South Korea United States and Western Europe Table 1: GEM 2010 60 Countries Classified by Economy and Geography Belgium, Denmark, Finland, France, Germany, Greece, Iceland, Ireland, Italy, Netherlands, Norway, Portugal, Azores, Spain, Sweden, Switzerland, United Kingdom, United States 1.5 The GEM study team in Israel The GEM study team in Israel has been operating since 2007 at Ben-Gurion University, in the Ira Center for Business, Technology and Society. The team includes Prof. Ehud Menipaz, The Abe and Sol Krok Chaired Professor of Entrepreneurship Management and Founding Chair of the Ira Center for Business, Technology and Society, Ben Gurion University, Team Leader; Mr. Yoash Avrahami MSc, Researcher and Study Coordinator; Mr. Harel Yedidsion, MBA; and Prof. Miri Lerner, former Israel Team Leader, Tel Aviv-Yafo Academic College.
13 2. Research methodology 2.1 Collecting the study data The study refers to entrepreneurship as a whole, but focuses on the functioning of the individual entrepreneur in the entrepreneurship process. The uniqueness of GEM is that it does not analyze the new business itself, but rather, studies the behavior of the entrepreneurs as individuals, in the context of starting and managing the business. The study views entrepreneurship as a process, and therefore refers to entrepreneurial activity according to its various stages, as shown in Figure 1. Discontinuation of Business Total Early-Stage Entrepreneurial Activity (TEA) Potential Entrepreneur: Opportunities, Knowledge and Skills Nascent Entrepreneur: Involved in Setting Up a Business Owner-Manager of a New Business (up to 3.5 years old) Owner-Manager of an Established Business (more than 3.5 years old) Conception Firm Birth Persistence Figure 1: Stages of Entrepreneurial Activity: Process and GEM Operational Definitions. Source: GEM Global Report 2010 Fig: 1 GEM study data are systematically collected from three sources: 1. A multi-year survey among the total population of adults age 18-64, by means of a representative sample of at least 2000 adults in each country.* The Israeli sample in 2010 included 2007 men and women, with a distribution representative of Israel s population, taking into account three sectors: veteran Jewish residents (N=1245), Israeli Arabs (N=400), immigrants from the CIS countries (N=362). 2. A comprehensive questionnaire with 24 experts selected according to their areas of expertise, professions and profound knowledge of one or more of the nine areas which were defined in the study model as * The marginal sampling error in our sample of the adult population is ±2.2%. framework conditions for entrepreneurial activity. 3. Compilation of economic data from Israeli and international sources, so as to enable comparison between countries. (Israel Central Bureau of Statistics, the World Bank, the International Monetary Fund (IMF), the United Nations (UN) and additional specific research sources). 2.2 Revised GEM model The GEM theoretical model was developed in order to reflect the complex relationships between entrepreneurial activity, the setup of companies and new small businesses, and the activity of large, established companies and macroeconomic activity which leads to economic growth.
14 The model, shown in Figure 2, refers to the national economic growth and the economic activity as a whole within the country as being related to the simultaneous activity of new small firms and of large, old and well-established firms. The new small firms are a source of innovation; they fill market niches, increase competition and thereby improve the efficiency of the economic system. Looking at the dynamics of businesses in this way enables a better understanding of the importance of entrepreneurship and the relationship between it and indices of economic growth: Growth in the gross domestic product (GDP) and growth in the number of jobs in the national economy. Social, Cultural, Political Context From Other Available Sources From GEM national Expert Surveys (NES) Basic Requirements -.Institutions -.Infrastructure -.Macroeconomic Stability -.Health and Primary Education Efficiency Enhancers -.Higher Education and Training -.Goods Market Efficiency -.Labor Market Efficiency -.Financial Market Sophistication -.Technological Readiness -.Market Size Innovation and Entrepreneurship -.Entrepreneurial Finance -.Governmental Policies -.Governmental Entrepreneurship Programs -.Entrepreneurship Education -.R&D Transfer -.Commercial, legal Infrastructure for Entrepreneurship -.Internal market Openness -.Physical Infrastructure for Entrepreneurship -.Cultural, Social Norms Established Firms (Primary Economy) Entrepreneurship Attitudes: Perceived Opportunities Perceived Capacity Activity: Early-Stage Persistence Exits Aspirations: Growth Innovation Social Value Creation From GEM Adult Population Surveys (APS) New Branches, Firm Growth National Economic Growth (Jobs and technical Innovation) Figure 2: GEM Revised Model For more details on the model, see: GEM 2010 Executive report at www.gemconsortium.org, as well as Levie and Autio (2007)
15 3. Principal Findings of The GEM Global Study for 2010 Percentage of 18-64 popluation involved in early-stage entrepreneurial activity 35 30 25 20 15 10 5 0 PK GH ZM UG EG GT JM AO PE EC CO CN CR IR BR ME CL TW ZA MK TR BA TN MY AR UY MX LV RO HU HR RU Angola AO Spain ES Korea KR Slovenia SL Argentina AR Finland FI Latvia LV Switzerland SW Australia AU France FR Montenegro ME Tunisia TN Bosnia and Herzogovina BA Ghana GH Macedonia MK Turkey TR Belgium BE Greece GR Mexico MX Trinidad and Tobago TT Bolivia BO Guatemala GT Malaysia MY Taiwan TW Brazil BR Croatia HR Netherlands NL Uganda UG Chile CL Hungary HU Norway NO United Kingdom UK China CN Ireland IE Peru PE United States US Colombia CO Israel IL Pakistan PK Uruguay UY Costa Rica CR Iran IR Portugal PT Vanuatu VU Germany DE Iceland IS Romania RO South Africa ZA Denmark DK Italy IT Russia RU Zambia ZM Ecuador EC Jamaica JM Saudi Arabia SA Egypt EG Japan JP Sweden SE PT TT SA KR IL SI AU UK FR FI GR SE ES DE JP BE DK IT R 2 =.492 0 10 20 30 40 50 60 GDP per capita in Purchasing Power Parities ($), in thousands Figure 3: Total Entrepreneurship Activity (TEA) Rates and GDP per capita 2010 Source: GEM 2010 global report Fig: 5 IS NL IE US SW NO Entrepreneurship Relative to Development Levels Figure 3 plots TEA rates against GDP per capita, adjusted for purchasing power parity. As this figure shows, TEA rates are highest for the poorest countries, declining rapidly and then leveling out in the efficiency stage, with low levels continuing into the innovation stage until they turn upward at increasing levels of wealth. One key reason for this trend can be found in differences between the level of necessity and opportunity-based entrepreneurship at particular GDP levels. Necessity-driven entrepreneurs are those who enter self-employment because they have no better options for work; in other words, they start businesses to generate income for themselves and their families. Opportunity-driven entrepreneurs, on the other hand, choose to start businesses out of opportunity, even when other employment possibilities are available to them. Necessity-driven activity tends to be higher as a proportion of TEA in less developed economies. Industrialization and economies of scale allow more people to find stable jobs in large industrial plants, and the proportion of necessity-driven entrepreneurship declines as a result. At the same time, increase in wealth and the development of basic requirements (infrastructure, economic stability, education) enable opportunity-based businesses to thrive, creating a shift in the nature of entrepreneurship activity. Conversely, the dominance of large firms leads to an overall reduction in the number of new businesses. At the wealthiest societal levels, individuals have access to entrepreneurial finance, open markets, R&D knowledge and other entrepreneurshipspecific framework conditions. Toward the right-hand side of the figure, the role played
16 by the entrepreneurship sector may increase because more individuals can access the resources necessary to start their own business in knowledge-intensive environments with abundant opportunities. This tends to create an upward trend as GDP rises to its highest levels, thus completing the U-shaped curve. (More details in GEM Global report 2010). Israel is positioned on the downward slope of the U-shaped curve. Most of the innovation-driven countries are ahead on that curve with much higher rates of GDP per capita (PPP). It seems that the political and economic policy constraints which block Israel s prospect to be a wealthier country are also what prevent Israel from gaining a higher place on the curve. GEM Global Report 2010: Selection of Principal Findings In the innovation-driven group, there was a distinction between high opportunity and capability perception in the Nordic regions and lower perceptions in southern Europe. Fear of failure showed less variation with development level and geographic location. Total Early-Stage Entrepreneurial Activity (TEA) includes individuals in the process of starting a business and those running new businesses less than 3½ years old. These rates were highest for the factor-driven economies, and declined with greater development levels. At the very highest GDP levels, however, there was a slight upward trend in TEA levels. The innovation-driven group had the lowest necessity rate, but the highest proportion of opportunity-driven motives, where entrepreneurs are drawn into entrepreneurship, because they recognize an opportunity that can either improve or maintain their incomes or increase their independence. In the innovation-driven economies, Iceland, France and Israel showed the higher intent to start a new business in the next 3 years. Both South Korea and Japan had low perceptions about opportunities and capabilities; this being matched by low intent only in Japan, while South Korea was well above average on intent measure. In each economic group, there were more entrepreneurs in the 25 34 age group than any other age range. Women s participation in entrepreneurship relative to men s ranged markedly: In South Korea there were five times more men than women entrepreneurs, while in Ghana there were fewer men than women starting businesses. The rate of established business (EB) ownership the running of businesses more than 3 ½ years, declined with greater economic wealth. In comparison, TEA levels were higher than established business rates in the factor-driven group, but declined more steeply with greater development levels. However, TEA levels dropped below the level of established businesses (EB) for most economies in the innovation-driven phase (but not for Israel). Interviews with national experts revealed insights on factors impacting the environment for entrepreneurship in the various economies. Physical infrastructure and the commercial and legal infrastructure received among the most positive evaluations across the economies. Education and training in primary and secondary school and regulations impacting new and growing firms were among the most negatively evaluated factors. Egypt, Iran, Saudi Arabia, West Bank and Gaza were part of the GEM survey in 2010 and included in the factor-driven stage (the less developed countries in the study). Israel is the only Middle-East country in GEM that was included among the innovation-driven countries (the 23 most developed countries in the survey).
17 4. GEM 2010 Israel National Report 4.1 Principal Findings In 2010, the percentage of total early-stage entrepreneurial activity (TEA) in Israel among the total population of adults age 18-64, decreased to 5.0% from 6.1% in 2009. Israel s early-stage activity (TEA) level in the technology sector rose from 2.68% in 2009 to 5.0% in 2010, placing Israel 21st among 60 GEM countries, compared to its ranking of 22 out of 55 countries in 2009. Israel s early-stage activity (TEA) in the technology sector (medium or high-tech) comprised 80% Israeli Jewish entrepreneurs and 20% Israeli Arab entrepreneurs. Additionally, 6.8% of Jewish males, 5.6% of Jewish females and 7.1% of Arab males were TEA-tech entrepreneurs. There were no Russian immigrants among the technology entrepreneurs in 2010, and in 2009 all hightech entrepreneurs were veteran Israeli Jews. Israel s established businesses (EB) activity in the technology sector decreased from 8.75% in 2009 to 7.14% in 2010, lowering Israel to the 22nd place among 60 GEM countries, compared to third place among 55 countries in 2009. Young businesses (TEA) using the very latest technology decreased from 29.6% in 2009 to 21.8% in 2010, placing Israel 13th among 60 GEM countries, compared to fifth in 2009. The percentage of established businesses (EB) using the very latest technology dropped from 16.6% in 2009 to 8.3% in 2010, placing Israel 11th out of 60 GEM countries, compared to its number 5 ranking among 55 countries in 2009. These findings may be indicative of the possible impact of the global economic crisis on Israel s entrepreneurial activity on the technology frontier. The overall women/men ratio among Israel s TEA entrepreneurs in 2010 was 1:1.6; that is, one woman entrepreneur for every 1.6 male entrepreneurs, compared to a ratio of 1:1.92 in 2009. This means that in 2010, more women set up new businesses, while the number of men doing so decreased. TEA rates for the three Israeli population segments (age 18-64) ranged as follows: 5.0% among Israeli Jews, 2.8% among Russian Jewish immigrants and 6.5% among Israeli Arabs (6.3%, 4.2%, 7.3%, respectively, in 2009(. The year 2010 marks the third year out of 11 that the TEA level of Israeli Arab entrepreneurs outpaced that of Israeli Jewish entrepreneurs (2010-2009, 2004). Despite various limitations, the Arab minority showed great advancement in entrepreneurial activity, but mainly in non-high-tech entrepreneurship! The total early-stage activity (TEA) of Israeli Arab females rose significantly to 6.5%, equaling that of Israeli Arab males. Arab women have surpassed Israeli Jewish women in the last 2 years, with a TEA rate of 6.5% in 2010 and 4.9% in 2009, compared to Israeli Jewish women s TEA rates of 2.6% in 2010 and 4.5% in 2009. The special sample of the Negev Region (N500) shows significantly lower TEA (3.0%) compared to the national TEA (5.0%). In the Negev Region, Russian Jewish immigrants led with 5.5%, followed by veteran Jews with 2.4% and Arabs with 2.2%.
18 Growth aspirations among young businesses (expecting to hire more than 10 employees and over 50% growth within the next 5 years) slumped to 16.3% from 26.8% in 2009. Growth aspirations among established businesses slid to 8.45% from 12.7% in 2009. Some 74.4% of Israeli TEA entrepreneurs cited opportunity rather than necessity as their motive for creating a new venture, the gender breakdown being 78.1% among females and only 72.4% among males (76.5% and 71.3%, respectively, in 2009). The opportunity motive increased slightly among both males and females. The year 2010 marked the second successive year that Israeli women outpaced Israeli men in opportunity-driven entrepreneurship. An estimated 35.1% of Israeli males and 32.7% of Israeli females expected good opportunities for starting a new business within the next 6 months, compared to 35.5% and 22.6%, respectively, in 2009. The significant surge in women s optimism about good opportunities is an interesting finding, mainly given the overall sharp downturn in growth aspirations, a dampening of male optimism and men s diminishing part in TEA rates, echoing the 2008-2010 global economic crisis. Fear of failure among Israeli males rose to 42.5% from 39.2% in 2009, while decreasing to 43.95% from 47.8% in 2009 among Israeli females. These findings suggest that the impact of the global economic crisis still lingers, but its implications affect men and women differently. While fear of failure could act as a deterrent factor on males in 2010, the decreasing fear of failure among females could act as an encouraging factor. Some 48.1% of Israeli males and 31.9% of Israeli females aged 18-64 claimed that they had the knowledge/skills to start a business, compared to 49.7% and 26.4%, respectively, in 2009. Women s self-assessment of personal skills and knowhow needed to start a new business rose slightly, while men s positive perception of their own skills decreased slightly. 4.2 Characteristics of entrepreneurship in Israel 2010 There is a high awareness of entrepreneurship in Israel, where setting up a new business is considered a respectable, laudable and challenging career track, which entails risks but also holds out the opportunity for achieving a high income, economic independence, social status and prestige. In 2010, Israel ranked 47th among the 60 GEM countries in terms of total early-stage entrepreneurial activity (TEA), placing 13th among the 23 innovation-driven countries. Figure 4 shows the TEA rate among innovationdriven countries, which are the most developed in the GEM survey. This group of developed countries is the most relevant for comparison with Israel.
19 GEM10: TEA Innovation-Driven countries - % TEA 2010 13.0% 12.0% 11.0% 10.0% 9.0% 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% Italy Japan Belgium Denmark Germany Spain Portugal Slovenia Sweden Israel Switzerland Greece Finland France United kingdom Korea Ireland Netherlands United States Norway Australia Iceland Figure 4: TEA Entrepreneurship Rates among GEM Innovation-Driven countries 2010. Table 2 represents a comparison of the rates of entrepreneurial activity in Israel for the years 2002 2010. The table also relates to variables regarding intention to establish a new business in the next 3 years and the rate of closure of businesses by owners in a 12-month period preceding each yearly survey. In the years 2003, 2005 and 2006 we did not participate in the GEM surveys, but it is evident how the rates for the TEA and EB phases changed during the periods surveyed, and how they relate to the rate of closure of businesses and intention to start new ones (see more later). Since 2004 Israel s TEA rate has shown a slow and steady decline. A slight improvement in 2008 was followed by further decline in 2009-2010, the years of the global economic crisis. In 2007, new businesses which had paid salaries for 3-42 months were at their lowest level since 2002. One possible explanation is the failure of many entrepreneurs in the nascent stage to launch their start-up successfully. Nascent businesses (up to 3 months paying wages) New businesses (up to 42 months) Total nascent + new businesses (TEA) Established businesses (over 42 months) (EB) Intention of establishing a business in the next 3 years Entrepreneurs who closed businesses in the last 12 months 2010 3.1% 2.1% 5.0% 3.25% 15.3% 2.05% 2009 3.4% 2.7% 6.1% 4.3% 17.5% 2.23% 2008 3.5% 3.1% 6.6% 4.5% 18.2% 1.84% 2007 3.6% 2.0% 5.4% 2.4% 15.8% 2.40% 2004 4.3% 2.5% 6.6% 3.9% 20.4% 5.60% 2002 3.4% 3.9% 7.1% 5.7% 17.5% 4.50% *** All data in the table refer to the percentage of Israel s population of adults age 18-64 Table 2: Comparison of entrepreneurship data in Israeli population 2002-2010
20 Table 3 presents a comparison of the ratio of TEA entrepreneurs motivated by opportunity to those motivated by necessity for the years 2007-2010. We can see that about 75% of Israel s entrepreneurs are opportunity-driven, and that finding is quite stable for most of the years Israel participated in the GEM study. Key Indicators Israel 2010 all population sample Israel 2010 south region special regional sample Israel 2009 all population sample Israel 2008 all population sample Israel 2007 all population sample TEA Opportunity based activity 74.4 80.0 73.0 76.0 74.0 TEA Necessity based activity 25.6 20.0 27.0 24.0 26.0 TEA Male entrepreneurs 61.5 78.5 66.0 69.0 65.1 TEA Female entrepreneurs 38.5 21.5 34.0 31.0 34.9 Table 3: GEM Israel 2010 Key Indicators (%) 2007-2010 4.3 Entrepreneurship by population segment A survey of early-stage entrepreneurial activity (TEA 2010) rates across Israeli population segments yielded an interesting finding: Israeli Arabs led, for the second consecutive year with a TEA rate of 6.5%, followed by veteran Israeli Jews with a rate of 5.0%, and CIS immigrants with a rate of 2.8%. Furthermore, the malefemale makeup of TEA entrepreneurs varied with population segment: among veteran Jewish residents men accounted for 7.9% of TEA entrepreneurs and women 2.6%; in the Arab segment, men comprised 6.5% and women 6.5%; and in the CIS immigrants segment, men made up 3.2% and women 2.4%. The women/ men ratio among veteran Israeli Jews was 1:3 that is, one female entrepreneur for every three male entrepreneurs. Among immigrants from the CIS countries, the ratio was 1:1.33 that is, 75 female entrepreneurs for every 100 male entrepreneurs. In the Arab sector, the ratio was 1:1, or one female entrepreneur for every male entrepreneur! Only the veteran Israeli male/ female ratio (1:3) was statistically significant. A noteworthy finding of the 2010 survey is the occurrence of a significant change in the Arab segment: the Arab women s TEA rate rose from 4.9% in 2009 to 6.5% in 2010, while the Arab men s TEA rate decreased significantly from 9.4% in 2009 to 6.5% in 2010. This notable development in the Arab segment s entrepreneurial activity resulted in the Arab segment taking the lead in Israeli TEA entrepreneurship in 2010 and surpassing veteran Jewish entrepreneurs for the second straight year since 2009. (The very first time the Arab segment led TEA entrepreneurship was in 2004.) Women s entrepreneurship in 2010 increased significantly only among Arab women and slightly among Russian immigrant women, while Israeli Jewish women s TEA rate dropped from 4.6% in 2009 to 2.6% in 2010. Thus, it was largely Arab and Russian immigrant women that contributed to the female entrepreneurial activity rate in 2010, improving Israel s male/female ratio (see Table 4).
21 Israeli Jews Russian Immigrants Israeli Arabs Year Male Female Male Female Male Female Israel Total Mean TEA 2010 7.9% 2.6% 3.3% 2.4% 6.5% 6.5% Segment Mean 2010 5.0% 2.8% 6.5% Male/ Female ratio 1: 3 1:1.37 1:1 5.0% 1:1.6 TEA 2009 8.2% 4.6% 5.8% 1.8% 9.4% 4.9% Segment Mean 2009 6.3% 4.2% 7.3% 6.1% Male/ Female ratio 1:1.78 1:3.2 1:1.92 1:1.9 Table 4: Israel 2010 TEA Entrepreneurship by Gender and Origin 4.4 Impact of global economic crisis on Israel s entrepreneurial activity Tables 2 and 4 summarize the implications of the global economic crisis that started in 2008 for Israel s early-stage entrepreneurs. With the onset of the economic crisis in the first half of 2008, the Israeli TEA rate initially increased from its lower level in 2007, but subsequently exhibited a downturn as the crisis became a new reality and its implications were fully grasped by every entrepreneur in Israel. In 2009 Israel s Total Early Stage Entrepreneurial Activity (TEA) and Established Business (EB) activity rates declined across all population segments, though these declines were marked by differences in direction and intensity within the population segments themselves and among males and females a point elaborated on later in this report. The year 2010 was the second year of decreasing entrepreneurial activity (TEA and EB) rates across all Israel s population segments. This steady decline in entrepreneurial activity was accompanied by lower intentions to establish new businesses within the next 3 years and a rising rate of business closures. The 2010 TEA rates in Israel decreased for all male entrepreneur segments (see Table 4), dropping from 9.4% to 6.5% for Arab males, declining from 5.8% to 3.3% for Russian immigrant males, and slipping slightly from 8.2% to 7.9% for Israeli Jewish males. As for female entrepreneurs, the TEA rate for Israeli women decreased significantly from 4.5% to 2.6%, while that of Arab women and Russian immigrant women rose significantly to 6.5% and 2.4%, respectively (from 4.9% and 1.9%, respectively, in 2009). This level of female entrepreneurial activity is quite impressive compared to the declining rates for overall male entrepreneurial activity in 2010 (see Table 4). The veteran Israeli-Jewish population segment (62% of Israel s sample population) was the only one in which both male and female TEA 2010 rates decreased. Table 2 shows a steady downtrend in most Israeli entrepreneurial activity indicators for the years 2008-2010, the period of the recent economic crisis. A slow decline is evident in the rate of nascent businesses the phase in which entrepreneurs
22 start a new business and invest most of their resources to realize the business vision and aspirations. Also observed is an even stronger decline in the new-firm stage for new business owners that paid salaries up to 42 months. The TEA rate, which includes both nascent and new firm stages, shows an overall decline among young businesses in creation. Established businesses (EB), i.e. those surviving more than 3.5 years, experienced a greater decline in 2010 than (TEA) young businesses, sliding from 4.5% in 2009 to 3.25%. This was accompanied by a downturn in intentions to establish a new business within the next 3 years among Israel s population, from 18.2% to 15.3%, possibly indicating decreasing population optimism about entrepreneurial activity as a real achievable career path for individuals in the next year. 4.4.1 Business closures in Israel Also evident is a growing rate of business closures in the twelve months preceding the survey date. Recent years closing rates were: 1.84% in 2008, 2.23% in 2009, and 2.05% in 2010 (Table 2).Only businesses closed by the owners and discontinued are taken into account. An examination of the TEA rates and business exit rates for 2008-2010 reveals a pincer effect: a regressing TEA rate curve concurrent with a climbing business exit rate curve (Figure 5 and Table 2). The ratios of the business creation rate to business exit (death) rate characterize the slowing entrepreneurial activity during 2008-2010. In 2008 there were 1.84% deceased businesses versus 6.6% of TEA new businesses created, which means 28 businesses died for every 100 businesses created. In 2009, there were 37 deceased businesses for every 100 businesses created, rising in 2010 to 41 per 100 of total new businesses created that year (Table 2). It is interesting to note that the GEM global mean business exits for the period 2008-2010 declined in 2009, rising again in 2010, while Israel s business exits rate kept rising in 2009, declining slightly in 2010 (Figures 5, 6).The minor decline in Israeli business exits paralleled a greater decline in Israel s TEA rates: in other words, fewer new start-ups were associated with fewer business closures. 2008 43 Countries IL Rank 2009 51 Countries IL Rank 2010 59 Countries IL Rank Israeli owners who closed a business that was discontinued 1.84% 28 2.23% 32 2.05% 33 GEM countries mean per year 3.45% 3.1% 3.84% Israeli owners who exited a business that was continued by others 1.3% 22 1.79% 14 1.42% 20 GEM countries mean per year 1.62% 1.37% 1.49% Total Israeli owners that exited businesses in the 12 months preceding the surveyed year 3.14% 4.02% 3.47% Table 5: Businesses exited by owners in the 12 months preceding the yearly GEM survey 2008-2010
23 7.0 6.0 TEA rate Exit-Deceased rate 5.0 4.0 3.0 TEA.. 2010 2009 2008 2.0 1.0 0.0 Figure 5: GEMIL10 -% TEA versus % business exit ratio in Israel, 2008-2010 4.5 4 3.5 3 GEM Mean Israel Mean 2.5 2 1.5 1 0.5 0 2008 2009 2010 Figure 6: GEM Israel 2010: Mean of business exits in Israel versus GEM countries 2008-2010