Growing Beyond Entrepreneurs speak out A call to action for G20 governments The Nice Côte d Azur 2011 Entrepreneurship Barometer Produced for the G20 Young Entrepreneur Summit, October 2011 Country digest Argentina Australia Brazil Canada China France India Indonesia Italy Japan Mexico Russia Saudi Arabia South Africa South Korea Turkey United Kingdom United States European Union
The perception barometer This study focuses on the entrepreneurship environment of G20 countries through the lens of five fundamental enablers: entrepreneurship culture; education and training; access to funding; regulation and taxation; and coordinated support. Through these enablers, we explore the climate for entrepreneurs in the G20 countries and the likely direction things will take. Our original approach is based on: Quantitative economic indicators The opinions of entrepreneurs on the progress and impact of specific enablers Our perception barometer sums up progress as evaluated by more than 1,000 entrepreneurs during the last five years, using four score ranges. Viewpoint Alfred Neher Managing Director, Star Cooperation, Founded in 1997, Star Cooperation provides consulting and operational services across its three business areas: House of Media, Consulting World and Future Lab. Dr. Alfred Neher is the founder of the company and has been sole owner since 2005. certainly admires entrepreneurs: our Mittelstand, or middle-market, businesses are high profile and they are major employers. There are also many companies being founded, but some potential entrepreneurs are apprehensive about the risk involved. Part of the solution to this is education: you get taught about management in college, but not necessarily about entrepreneurial behavior. Berufsgruppen, or professional organizations, are better at teaching these skills. Weighted score: lower quartile Deteriorated Tendency + ++ Improved Weighted score: higher quartile One huge advantage for all businesses would be a common regulatory environment in Europe. My company works across Europe and each country has its own particularities; big companies can deal with this but smaller international companies find it more difficult. I d also like to see simpler tax rules and regulation, and flexibility on employment law. The analysis of these indicators and opinions also highlights how entrepreneurs perceptions may differ from the latest economic figures; a divergence that may be due to cultural bias, derivative ideas or lack of information. Red tape can also present challenges when it comes to accessing sources of funding. Finally, I think that everyone should be learning at least two languages from primary school onward. That would make it easier not only for Germans to deal with international business partners, for example, but also for Germans to hire, say, a Spanish person who spoke German. These gaps in perception raise a call to action for governments to tackle these specific issues.
The Nice Côte d Azur 2011 Entrepreneurship Barometer by Ernst & Young Solid bases to consolidate Small and medium enterprises (SMEs) represent the bone structure of s entrepreneurial landscape, making up for 99.5% of all companies. They contribute 52.8% to the overall value added to the economy 1 and 60.5% of overall employment. However, this strong entrepreneurial culture cohabites with a relatively low business density 2 for mature G20 countries. Traditionally, entrepreneurship in has benefited from largely well-coordinated government support, and a variety of often close relationships between SMEs, elements of the banking system, larger corporations and research institutions. The country s historical strength in innovation and technology, and its export prowess, both provide a strong framework for entrepreneurship to thrive. The German economy and labor market recovered rapidly following the 2008 downturn. However, ongoing global macroeconomic uncertainty, in which is likely to continue to have a pivotal role in supporting weaker European economies, could present a future drag on both the banking sector s and the Government s ability to drive an improved entrepreneurship climate. New business density (new registrations per 1,000 people aged 15-64) 5 4 3 2 1 0 2005 2006 2007 2008 G20 average Mature market average Source: World Bank. Data not available for US, China and Saudi Arabia. 1. SBA Fact Sheet, European Commission, 2009. 2. A measure of new business registrations per 1,000 people aged 15 64. General and specific factors influencing the entrepreneurship environment Strengths A well-established base of coordinated support measures A strong culture of entrepreneurship, built on a deeply entrenched capacity for succeeding in export markets, and for promoting innovation and technology Entrepreneurs benefit from a network of robust local banks with a balanced approach to both market and social targets Weaknesses The Government is looking to bring in stricter regulations and governance around the quality of management and diligence procedures, which may lessen deal-making attractiveness Opportunities Reduce the number of procedures and time required to start a business Improve tax incentives for starting a new business Replication of successful government-led coordinated support programs involving companies and research institutions Threats Weak lending conditions could persist, having particularly negative effects on small business start-ups Poor coordination of support to entrepreneurs could continue to be a constraint Entrepreneurs speak out The Nice Côte d Azur 2011 Entrepreneurship Barometer digest 1
Entrepreneurship culture Entrepreneurs highly regarded Do you think that the culture of your country encourages entrepreneurship? Can't say 2% No 20% widely encourages entrepreneurship, according to 78% of German entrepreneurs. 78% of interviewees agreed that s culture encourages entrepreneurship Yes 78% Mature markets: 72% Rapid-growth markets: 80% Source: The Nice Côte d Azur 2011 Entrepreneurship Barometer by Ernst & Young. Respondents thought that many factors could explain this positive image. Fifty-eight percent said entrepreneurs were seen as providers of innovative products, while 56% cited the fact that entrepreneurs were presented as role models in the education system. Entrepreneurial culture markers are also prominent in. As an example, innovation levels have increased, with researchers now 7% of the population. In addition, the number of scientific and technical news articles published has jumped. Perceptions of business failure are interesting. German entrepreneurs were significantly more likely than those in other mature market G20 countries to state that business failure is viewed by investors, society and the business environment as a barrier to a future business project. How do you think business failure is perceived in your country by the business environment? It has no impact on future business projects 50% To improve the entrepreneurship culture, 74% of German entrepreneurs thought that promoting the role of entrepreneurs in creating new jobs (74%) and promoting the career opportunities offered by entrepreneurship (72%) would have a high impact. 40% It's a lack of appropriate skills 30% 20% 10% 0% It's a learning opportunity Mature markets It's a career failure It's a barrier for future business projects Source: The Nice Côte d Azur 2011 Entrepreneurship Barometer by Ernst & Young. G20 average Innovative environment 2007 Change 2005-07 2007 Change 2005-07 R&D expenditure (% of GDP) 2005-07 3 2.5 +0.05 p.p. 1.5 +0.14 p.p. Scientific and technical journal articles (number of publications) 44,408 +0.5% 31,376 +6.0% Researchers in R&D (per million of population) 4 3,532 +7.0% 2,340 +0.5% p.p.: percentage points 3. G20 average based on the 17 countries for which data is available for 2007. 4. G20 average based on the 13 countries for which data is available for 2007. 2 Entrepreneurs speak out The Nice Côte d Azur 2011 Entrepreneurship Barometer digest
Education and training Solid base and new dedicated scheme Do you think that students need to follow specific training to become entrepreneurs? No 40% Benefiting from a good education system, provides a solid base for young people to become entrepreneurs. Yes 60% Mature markets: 59% Rapid-growth markets: 80% Source: The Nice Côte d Azur 2011 Entrepreneurship Barometer by Ernst & Young. 60% of respondents believe specific training is necessary to become entrepreneurs, in line with mature markets average Half of our respondents said that dedicated college and business school programs improved between 2005 and 2010. Entrepreneurship conferences and seminars also were seen to follow the same path. Illustrating this trend, the Gründercoaching Deutschland scheme was founded in 2010. This plan uses 700 million of European Social Fund resources to finance coaching for business start-ups or takeovers through a voucher system. It will be important for such improvement to continue, given that the German survey respondents were split 60:40 in favor of the proposition that students need to follow specific training programs to become entrepreneurs. Improvements in entrepreneurship opportunities at educational establishments can sometimes be broader than focusing just on the content of the entrepreneurship program, conference or seminar itself. For example, programs such as Existenzgründungen aus der Wissenschaft (EXIST) could be replicated. EXIST is a funding program with a broader goal of improving the start-up climate at universities and non-university research facilities in, as well as to increase the number of start-ups that are technology or knowledge based. 2008 Change 2005-08 G20 average 2008 Change 2005-08 Public spending on education, total (% of GDP) 2005 07 School enrollment, secondary (% gross) School enrollment, tertiary (% gross) 4.5 n.a. 4.8 +0.3 p.p. 101.7 +0.8 p.p. 95.9 +1.6 p.p. n.a. n.a. 53.5 +1.0 p.p. Tertiary-type A and advanced research programs (number of graduates) 5 369,913 +54% n.a. 8% n.a.: data not available p.p.: percentage points 5. Based on 11 countries for which data is available. Entrepreneurs speak out The Nice Côte d Azur 2011 Entrepreneurship Barometer digest 3
Access to funding Bank lending to revive Young entrepreneurs access to funding is described as difficult, according to 80% of our respondents. This rate is the second highest among mature market G20 countries. of German entrepreneurs reported bank 64% lending had deteriorated from 2005 to 2010 245% A triple-digit rise of listed companies has joined the SME stock market since 2005 The deterioration in bank lending during the 2007 08 financial crisis is thought to be behind the deterioration of access to funding by entrepreneurs. The KfW Bankengruppe, however, has taken the matter in hand. In 2008, on behalf of the Government and the federal states, the bank launched a 15 billion economic stimulus package. This action aims to foster access to bank loans for SMEs. However, 64% of German entrepreneurs still reported increasing difficulties in securing loans over the period. This contrasts with the long-term historical background during which bank loans to SMEs were regarded as a well-functioning aspect of s industrial trading economy. Nationwide local banks such as Sparkassen or cooperatives such as Volksbanken were then the key players. By not providing investment banking services and balancing market and social targets, they remain SMEs first choice. Entrepreneurs we interviewed also noted a deterioration in the IPO market during the period, confirmed by the decline in both main and SME stock markets in relation to the number of IPO deals. Access to funding through private equity (PE) is perceived to have improved. However, PE deal value was down 84% between 2005 and 2010. This perception gap is perhaps the result of a rising awareness among entrepreneurs of PE as a potential funding source even though actually tapping large amounts of funding has become increasingly difficult, probably in large part as a result of how much PE suffered during the financial crisis. Business angels funding was also reported to have improved by the entrepreneurs we talked to. The number of networks was down slightly over the period, from 43 to 41 though still showed the highest mature networks of any country aside from the United States. Venture capital (VC) was also seen to have improved. Indeed, the volume of equity invested by VC was up 25% over the period, supported by High-Tech Gründerfonds a VC investing a fund volume of around 272 million in seed-phase companies. Looking ahead, bank loans were viewed by the majority of the German entrepreneurs we interviewed as likely to have a high impact on improving entrepreneurship and entrepreneurs long-term growth over the next three years. Also, 68% of interview respondents held the view that the Government should facilitate support to entrepreneurs a higher proportion holding this view than in any other mature market G20 country. Taken together, these two sets of views suggest that German entrepreneurs may have become more skeptical of the banking sector s ability to deliver attractive credit consistently without some form of greater government incentive whether that be direct support to the banking sector, or an improved regulatory framework that reduces the sector s vulnerability. 2010 Change Perception barometer G20 average 2010 Change Business angels (number of networks) 6 41-5% + n.a. +48% + Perception barometer Venture capital (VC) (US$m) 646 25% + n.a. +17% + SME bank loans (% of GDP) n.a. n.a. -- 14.1% n.a. + Private equity (PE) (US$m) 3,029-84% + n.a. -22% + SME stock markets (number of listed companies) 162 245% + n.a. +22% + IPOs in main stock market (number of deals) 6-60% - n.a. +12% + IPOs in SMEs stock market (number of deals) 9-10% n.a. -33% n.a.: data not available 6. G20 average of the seven countries for which data is available through the European Trade of Association for Business Angels (EBAN). 4 Entrepreneurs speak out The Nice Côte d Azur 2011 Entrepreneurship Barometer digest
Regulation and taxation A mixed picture A small majority of German entrepreneurs find regulations effective for starting up a business. Indeed, ranks itself within the average band for mature market G20 countries regarding the red tape burden. of respondents judge measures to encourage 72% innovation as impactful 64% of our respondents have found the simplification of start-up business procedures effective Over the period studied, entrepreneurs experienced a 19-hour increase in time spent on tax issues. Insufficient tax incentives were noted as a particular area of weakness, with 58% judging that there were not enough tax incentives to make starting a business attractive. This is a reflection of declining government start-up incentives. The Organisation for Economic Co-operation and Development (OECD) reported a reduction in public expenditure as a percentage of GDP, from 0.09% in 2005 to 0.07% in 2008. With regard to positively changing perceptions, over half reported an improvement in innovation incentives and labor market rigidity over the period. As reported by the World Bank, the cost of hiring and severance were lower than the average for mature market G20 countries in 2010, and research and development (R&D) expenditure was higher than the G20 average in 2007. Ease of starting a business was seen to have improved by 44%, against just 26% who thought this had deteriorated in the last five years. The number of procedures required to start a business in is unchanged over the period, remaining at nine, which is the highest of the mature market G20 countries. However, the time required to start a business has declined, taking 9 days fewer in 2010 than it did in 2005, although this remains quite high compared with other mature market G20 countries at 15 days. The cost of starting a business is around the average for mature market G20 countries, at 4.8% of income per capita. also successfully eliminated minimum capital requirements to start a business over the period and the corporate income tax reduced from 25% to 15% in 2009. Looking ahead, we asked German entrepreneurs which measures would have the most impact on improving entrepreneurship and entrepreneurs long-term growth over the next three years. The result was that a large majority thought measures to encourage innovation (72%) and to simplify procedures to start a business (64%) would have a high impact. In addition, the highest proportion stated simplification of the legal system as one key measure to improve taxation in for entrepreneurs. G20 G20 average Perception barometer 2010 Change 2010 Change Innovation incentives + + Tax subsidy rate for US$1 of R&D, SMEs 2008-0.02 n.a. 0.148 n.a. Tax incentives - + Start-up incentives (% of GDP) 2005 08 0.07-22% n.a. n.a. Ease of starting + + Number of procedures to start a business 9 0 7.7-1.4 a business Time to start a business (days) 15-9 22.3-18.1 Cost to start a business (% income per capita) 4.8 +0.1 p.p. 10.6-9.8 p.p. IP protection + + Number of patents 2005 07 7 59,583-1.1% 126,375 +9.6% Business regulation - + Time spent on tax issues (hours per year) 215 +19 367.1-72 Labor market rigidity + + Cost of hiring 0.21 n.a. 0.3 n.a. Notice period 10 n.a. 5 n.a. n.a.: data not available p.p.: percentage points Severance cost 11.6 n.a. 12.2 n.a. 7. G20 average based on 12 countries and European Patent Office for which data is available in 2005 and 2009. Entrepreneurs speak out The Nice Côte d Azur 2011 Entrepreneurship Barometer digest 5
Coordinated support Entrepreneurs clubs and association: synergy on the move Do young entrepreneurs benefit from tailored support in your country? Can t say 6% Nearly half of our interviewees thought organizations collaborated better to provide entrepreneurs with support. Only 14% did not agree with this statement. No 52% Yes 42% Mature markets: 42% Rapid-growth markets: 56% Source: The Nice Côte d Azur 2011 Entrepreneurship Barometer by Ernst & Young. 68% feel the Government could improve support to entrepreneurs Entrepreneurs clubs and associations have been the drivers of improvement over the last five years, according to half of the respondents. However with only 44% of entrepreneurs evaluating the coordination between governments, associations and education systems as well coordinated, lags behind the G20 average. More than half of our survey respondents thought that young entrepreneurs do not benefit from tailored support in. They also considered mentoring programs as a high-impact enabler to improve the entrepreneurship environment over the next three years. Looking ahead, such programs could be specifically targeted at this audience to improve their long-term growth. German entrepreneurs were most likely to pick government agencies as organizations that will have a high impact on entrepreneurship over the next three years. There are a number of government leading practices that support the view that the Government should and will play a leading role though often in cooperation with other entities. A leading example of what the Government can do to coordinate support among entities is the Federal Ministry of Education and Research s support for the formation of regional networks through the Innovation Forums program. Strategic alliances are created between companies, research institutions and universities, to develop a clearly recognizable, innovative profile for their region. A similar type of initiative is the Innovative Regional Growth Cores program, which also supports the formation of alliances of companies, research institutions and universities at a regional level though in this case, coalescing around specific platform technologies. Coordinated support entrepreneurs perception of progress and future impact 80.0 Impact of next three years 60.0 40.0 20.0 Government agencies Mentoring program Chambers of commerce Incubators Entrepreneurs clubs and associations 10.0 20.0 30.0 Progress of last five years Source: The Nice Côte d Azur 2011 Entrepreneurship Barometer by Ernst & Young. 6 Entrepreneurs speak out The Nice Côte d Azur 2011 Entrepreneurship Barometer digest
Selection of government leading practices Existenzgründungen aus der Wissenschaft (EXIST) Launch date Main application area EXIST is a funding program that has the goal of improving the start-up climate at universities and non-university research facilities in, as well as increasing the number of start-ups that are technology or knowledge based. 1998 Access to funding, coordinated support, education and training Gründercoaching Deutschland The Gründercoaching Deutschland scheme uses 700 million of European Social Fund (ESF) resources to finance coaching for business start-ups or takeovers. It uses a voucher system and operates under the de minimis exemption in the state aid rules. Any business that has been started or taken over in the last five years is eligible (manufacturing, crafts, services, commerce, tourism, transport, professions), provided it supports a full-time job and is not itself active in business advice. 2007 Access to funding, coordinated support Gründerland Deutschland To strengthen the culture of business foundations in, the Federal Government has set up a new start-up initiative, Gründerland Deutschland, to encourage more Germans to start a business or engage in other entrepreneurial activity. A large catalog of measures, ranging from PR campaigns to prolonging a public-private VC fund, is aimed at boosting entrepreneurial attitudes. 2010 Access to funding, coordinated support, education and training High-Tech Gründerfonds High-Tech Gründerfonds is a -based VC and invests in technology companies at the seed stage. It invests VC in young, up-and-coming technology companies that implement promising research results in industry. The start-up companies are expected to lead their R&D projects to the production of a prototype, proof of concept or market launch by means of the seed financing of up to 500,000. High-Tech Gründerfonds has a fund volume of around 272 million. Investors in the public-private partnership are the Federal Ministry for Economics and Technology as well as the six industrial groups. 2005 Access to funding, coordinated support, entrepreneurial culture, education and training InnoProfile InnoProfile supports cooperation between junior research groups and businesses that represent regional core competencies and hold the potential to contribute to their region s economic development in a significant way. At the same time, the funding helps to attract well-qualified professionals from science and industry who will, in future, contribute to shape the region s economic and technological processes. 2005 Access to funding Innovation Forums The Federal Ministry of Education and Research (BMBF) supported the formation of regional networks with the Innovation Forums program. Strategic alliances are created between companies, research institutions and universities, thereby developing a clearly recognizable, innovative profile for their region. At the heart of the program is an Innovation Forum, a two-day event similar to a specialist conference within the framework of which key figures from business, scientific, social and political circles gather. The forum serves to promote the transfer of knowledge, to establish contacts and to determine the alliance s position in the competitive landscape. It is designed to provide an ignition spark for the initiatives, aiding them in attaining a good starting position. 2001 Access to funding, coordinated support, entrepreneurial culture, education and training Innovative regionale Wachstumskerne (Innovative Regional Growth Cores) The Innovative Regional Growth Cores program started in 2001 with the aim of effectively using and developing existent competencies and potentials in the New German Länder. It supports alliances of businesses, universities and research institutes, which either already possess a joint, specific platform technology in their region or have the potential to develop one. 2001 Coordinated support, entrepreneurial culture, education and training Zentrales Innovationsprogramm Mittelstand (ZIM) (Central Innovation Program for SMEs) Zentrales Innovationsprogramm Mittelstand (ZIM) offers SMEs reliable perspectives to support their ideas for innovation in the field of R&D. It includes the following promotion modules: Cooperation projects: cooperation projects of SMEs and SMEs with research facilities are promoted Single projects: single R&D projects of SMEs are promoted Network projects: external management and organizational activities for the development of market-oriented networks of innovative SMEs 2008 Access to funding Sparkassen Finanzgruppe This group provides cost covering basis, loans and alternative financing tools such as leasing and factoring to SMEs. The business model of the Savings Banks Finance Group is based on a balanced approach with both market and socials targets. Today the group comprises 429 independent savings banks and provides 42% of all corporate loans and loans for almost 50% of start-ups in. It provides SME loans for 2.6 million of SMEs. 2005 Access to funding Volksbanken The Volksbanken is a cooperative banking group promoting the interests of SMEs. It offers entrepreneurs a wide range of financial services (guarantee fund, support scheme, credit conditions and services, etc.) 2005 Access to funding Entrepreneurs speak out The Nice Côte d Azur 2011 Entrepreneurship Barometer digest 7
Methodology Further details can be found in the methodology section of The Nice Côte d Azur 2011 Entrepreneurship Barometer by Ernst & Young. For this first edition of the Entrepreneurship Barometer, our analysis of the G20 country environment is articulated around the five enablers (access to funding, regulation and taxation, education and training, entrepreneurship culture, coordinated support) defined by the G20 Young Entrepreneurs Alliance (YEA) in Toronto, Canada (20 22 June 2010). Our analysis is based on four building blocks: macroeconomic indicators, a perception survey conducted across the G20 countries, qualitative interviews of emblematic entrepreneurs and an analysis of G20 governments leading practices. Throughout this report, we have used the following definitions: Young entrepreneurs are young women and men aged between 18 and 40 The split of country groupings between mature markets (MMs) and rapid-growth markets (RGMs) is based on the definition provided by the International Monetary Fund (IMF) As no single definition is shared across all the G20 countries for small and medium enterprises (SMEs), we have adopted each country s respective definition We conducted a perception survey with an international panel of 1,001 entrepreneurs across the G20 countries (50 interviews per country). The field research was conducted by CSA Institute between 27 May and 7 July 2011. The perception barometer was calculated using a weighted average of country performance scores. Our quantitative analysis is based on the following economic indicators: Access to Funding Business angels Number of business angel networks [EBAN] Venture capital (VC) fund-raising Equity invested (US$m) [TO] SME lending Loan value (% of GDP) [WB] Private equity (PE) Deal value (US$m) [DL] Entrepreneurship culture SME stock markets Value of shares trading (US$m) [WFE] Number of listed companies [WFE] Broad public stock market Value of shares trading (US$m) [WFE] Number of listed companies [WFE] Initial public offering (IPO) broad and junior market activity IPO number of deals [DL] IPO capital raised [DL] Innovative environment Research and development expenditure (% of GDP) [WB] Scientific and technical journal articles (per million of population) [WB] Researchers in R&D (per million of population) [WB] Regulation and Taxation Tax subsidy rate for US$1 of R&D SMEs [OECD] Start-up incentives (% of GDP) [OECD] Starting a business Number of procedures [WB] Time (days) [WB] Cost (% income per capital) [WB] Minimum capital (% income per capital) [WB] Number of patents [WIPO] Time spent on tax issues (hours/year) [WB] Cost of hiring, severance cost and notice period [WB] Education and Training Public spending on education, total (% of GDP) [WB] School enrollment, secondary (% growth) [WB] School enrollment, tertiary (% growth) [WB] Tertiary-type A and advanced research program (number of graduates) [OECD] Sources: Dealogic (DL), World Bank (WB), European Business Angel Association (EBAN), World Federation of Exchanges (WFE), World Intellectual Property Organization (WIPO), Capital IQ data (CIQ), Organization for Economic Cooperation and Development (OECD), ThomsonOne (TO). 8 Entrepreneurs speak out The Nice Côte d Azur 2011 Entrepreneurship Barometer digest
Entrepreneurs speak out A call to action for G20 governments Through five key enablers, the Entrepreneurship Barometer analyzes 1 entrepreneurs perception as well as government leading practices in order to provide key recommendations to governments and entrepreneurs. The country profiles explore the national specificities of entrepreneurship 2 environment to provide a better understanding to entrepreneurs considering international expansion. Highlighting the main conclusions of the report, the Barometer website 3 provides further government leading practices and entrepreneurs success stories. www.ey.com/entrepreneurship-barometer
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