Riding the Wave of Nascent Entrepreneurs in HK & China to Create your Business Kevin Au Associate Director Center for Entrepreneurship, The Chinese University of Hong Kong 18 June, 2010
Participation in Business Creation Nascent Entrepreneur and New Business Owner, 16,669,884, 1% New Business Owner, 186,300,464, 6% Nascent Entrepreneur, 184,623,890, 6% Participation in Business Creation, 75 GEM Countries 2000-2009 Not Involved, 2771384423, 87%
What is Entrepreneurship? Getting into business Making Change the world Doing R&D partnering with business firms Commercializing technology/ inventions To pursue Opportunity without regard to Resources currently in hand
Can you be an Entrepreneur? Are you intelligent? Socially intelligent? Able to conceive the whole process of new venture creation: see and overcome the hurdles; put the missing pieces together Can you sell? When you start, your only resource is your talk Are you willing to get your hands dirty? New business venturing is not for you if you want a beautiful office and are not willing to deal with chores and troubles
3 kinds of Entrepreneurs Life Style Entrepreneurs 1 to 2 times of growth in 10 years Foundation Entrepreneurs 5 times in 5 years; 10-30 times in 10 years Build a team beyond oneself Hi-growth Entrepreneurs 10 times in 5 years; 100-300 times in 10 years Recognize real opportunity; Able to attract risk capital for rapid growth
Global Entrepreneurship Monitor 2009 Objective: Comparison Research and Analysis Entrepreneurship Activity in the World Members: 56 economies More than 300 scholars Research: Data Collection : Telephone and Face-to-face Interviews over175,000 interviews Data Analysis: Make use of the data collected from local and shared data from members to compare entrepreneurship activities Results: GEM Global Report was released on 14 th Jan 2010 Global Entrepreneurship Monitor & Center for Entrepreneurship
Center for Entrepreneurship, CUHK Promoting entrepreneurship through Practice, Research and Education GEM Hong Kong & Shenzhen Report 2009 Co-operate with Shenzhen Academy of Social Science Region :Hong Kong & Shenzhen Period for Data Collection: MAY to AUG, 2009 Data Collection : 4,000 Telephone Interviews and 72 Expert Interviews Research Area : Focus on Entrepreneurship Activities in Hong Kong & Shenzhen Global Entrepreneurship Monitor & Center for Entrepreneurship
China Panel Study of Entrepreneurship Dynamics A 2-year Longitudinal Study of Nascent Entrepreneurs Three waves planned; the first wave finished RDD sampling of Chinese households Phone interviews at 12 months intervals Three rounds of pre-testing Unique Features Sampling in 8 representative cities instead of the whole nation Modeled on PSED II and CAUSEE Introduced specific measures regarding contextualized issues and theory-driven issues etc.) Data collection outsourced to a professional survey company in China
Sampling Northeast: Modest in En 8 cities were selected as sampling area (4 cities in East China; 1city in Northwest China; 2 city in West China and 1 city in Central China) The plan is to collect 600 samples in the 8 cities Proportional sampling based on the adult population in each city West: low in En According to GEM: Central: Modest in En Chengdu Wuhan Beijing Xi an Tianjin Guangzhou Shenyang East: High in En Hangzhou The social-economic characteristics of the sampling cities City Popu. GDP Per GDP Agr. Manu. Service Export Beijing 1.15% 3.14% 37058 0.5% 2.23% 5.92% 3.47% Xi an 0.54% 0.51% 27387 0.25% 1.28% 1.18% 0.34% Tianjin 0.79% 2.15% 31550 0.49% 2.16% 2.93% 3.52% Hangzhou 0.5% 1.84% 35113 0.67% 1.84% 2.4% 2.56% Guangzho 0.57% 3.02% 56271 0.56% 2.51% 5.03% 3.62% Wuhan u 0.61% 1.43% 24889 0.5% 1.25% 2.19% 0.33% Chengdu 0.82% 1.6% 20626 0.81% 1.41% 2.3% 0.32% Shenyang 0.52% 0.88% 15116 0.49% 2.15% 1.86% 0.31% Total 5.50% 14.47% ----- 4.27% 14.83% 23.81% 14.47% Source: National Bureau of Statistics: China Statistical Yearbooks in 2004 Sampling Framework City Adult Samples Beijing 1058 112 Xi an 528 56 Hangzhou 514 55 Tianjin 772 82 Guangzhou 770 82 Chengdu 838 89 Shenyang 548 58 Wuhan 622 66 Total 5650 600 Source: National Bureau of Statistics
Definition of Nascent Entrepreneurship Total Early-Stage Entrepreneurship Activity Potential Entrepreneurs: Opportunities. Knowledge, and Skills Nascent Entrepreneurs: Involved in Setting Up a Business Owner-Manger of a New Business (Up to 3.5 years old) Owner-Manger of an Established Business (more than 3.5 years old) Conception Firm Birth Persistence Exit Total Entrepreneurial Activity Figure: The Entrepreneurial Process and GEM Operational Definitions Global Entrepreneurship Monitor & Center for Entrepreneurship
Entrepreneurship Activities of Hong Kong and Shenzhen are low Early- Stage Entreprene urial Prevalence (Percent) Nascent Entrepre neurial Activity (Percent) New Business Owner- Managers (Percent) Established Business Owner- Managers (Percent) Overall Entrepre neurial Activity (Percent) Number of Observati ons GDP per Capita (in 1000 USD PPP) Hong Kong 3.64 1.63 2.22 2.93 6.53 2,000 42.64 Shenzhen 4.75 2.16 2.59 1.56 6.27 2,000 13.15 China 18.84 7.40 11.78 17.16 35.66 3,608 6.53 United States 7.96 4.91 3.16 5.87 13.68 3,412 46.44 Figure 1a: Entrepreneurial Prevalence Rates in the world *GDP per Capita of Shenzhen was 2008 information. *The above statistics are estimates of the true proportion of the population involved in entrepreneurship; *Errors 土 2.5% Global Entrepreneurship Monitor & Center for Entrepreneurship
Entrepreneurship Activities of Hong Kong and Shenzhen among the World Figure: Early-Stage Entrepreneurship as a Function of Real GDP per Capita (Purchasing Power Parity basis) *GDP per Capita of Shenzhen was 2008 information. Global Entrepreneurship Monitor & Center for Entrepreneurship
Both Hong Kong and Shenzhen have experienced dramatic drops in entrepreneurial prevalence compared with previous studies Hong Kong Shenzhen China 2009 2007 2004 2009 2004 2009 2007 2005 Nascent Activity 1.6% 5.7% 1.5% 2.2% 3.9% 7.4% 6.9% 5.6% New Business 2.2% 4.3% 1.6% 2.6% 7.8% 11.8% 10.0% 9.4% Early Stage Entrepreneurial Prevalence 3.6% 10.0% 3.0% 4.8% 11.5% 18.8% 16.4% 13.7% Figure: Entrepreneurial Prevalence Rates in 2009 Compared with the Past Global Entrepreneurship Monitor & Center for Entrepreneurship
Although the quantity of entrepreneurship in Hong Kong has declined, Hong Kong s quality of entrepreneurship has increased Figure: Opportunity to Necessity Early-Stage Entrepreneurship as a Function of real GDP per Capita (Purchasing Power Parity basis) *GDP per Capita of Shenzhen was 2008 information. Global Entrepreneurship Monitor & Center for Entrepreneurship
Entrepreneurs in Hong Kong are increasingly better educated Relative Prevalence 2 1.8 1.6 1.4 1.2 1 0.8 0.6 0.4 0.2 0 Some Secondary Secondary Degree Post-Secondary Graduate Degree Education Level China Hong Kong Shenzhen Brazil Japan Russia United Kingdom United States Figure: Early-Stage Entrepreneurship and Education Distribution Some secondary means some secondary schooling. Secondary degree means upper secondary attained. Post-secondary degree includes any post high school college or Bachelor degree. Graduate Degree includes masters or doctorate. Global Entrepreneurship Monitor & Center for Entrepreneurship
Nascent Entrepreneurs in China Case Number Percentage Male 408 67.8% Female 193 32.2% 18-24 Yrs 162 27.6% 25-34 Yrs 256 43.7% 35-44 Yrs 101 17.3% 45-54 Yrs 44 8.0% 55-up Yrs 23 3.4% Marriage 304 50.5% Divorce 8 1.3% Single 289 48.7%
Nascent Entrepreneurs in China Number Percentage Individual Entrepreneurship 252 41.9% Team Entrepreneurship 349 52.6% Non-technological Entrepreneurship 226 37.6% Technological Entrepreneurship 375 62.4% Necessity Entrepreneurship 209 34.8% Opportunity Entrepreneurship 392 65.2%
Characteristics of Nascent Entrepreneurs in China Percentage Industry Wholesale and retail 40.6% Restaurant and hotel 15.6% Professional service 15.6% Manufacturing 7.0% Real estate 3.7% Agriculture 2.3% Communication 2.0% Bank and Finance 1.3% Others 11.9% Start-up capital (RMB) Percentage Less than 100,000 37.6% From 100,000 to 500,000 41.9% More than 500,000 20.4% Growth Aspiration Keeping controllable size 57.9% Growing as large as possible 41.1% Predicted 1st operation year revenue (RMB) Less than 100,000 34.9% From 100,000 to 5,000,000 56.6% More than 5,000,000 8.5% Predicted 1st operation year employment Less than 20 86.0% From 20 to 100 12.7% More than 100 1.3%
Growth Aspiration around Screening Years Size comfortable to manage Maximize growth Australia 2007 74.1% 25.1% China 2009 57.9% 41.1 Latvia: Men 2007* 54.0% 46.0% Latvia: Women 2007* 60.0% 40.0% Netherlands 1998 81.0% 19.0% Netherlands 2001-2009* 58.0 % 42.0% Sweden 1998-2000 43.5 % 56.5 % United States: Men 1998-2000, 2005-2006 United States: Women 1998-2000, 2005-2006 (1) Baltrusaityte-Axelson, Sauka, and Welter, 2008, Figure 28. 75.2 % 24.8 % 82.6 % 17.4 % (2) van Gelderen, Thurik, and Bosma (2005), Table 1, Choice to grow large or stay small. (3) Don t know omitted and start and sell included with growth oriented.
What do we find out? Entrepreneurs in China are young The nature of entrepreneurship is quickly shifting to non-mundane businesses Technology, opportunity-driven Entrepreneurship in urban areas is focused on retail/wholesale and professional services Many entrepreneurs in China are expecting hi-growth and scaling-up
To create a business in service sector with scalability and technology or high value-added towards potentially large opportunity
What needs to take to create a profitable venture? Anybody can do it Know what you are doing Experience in business organization and competition Do it Form team, assemble resources, set up production, establish a presence in customers and suppliers Do it quickly Do it flexibly Doing too much planning and following the plan is a ticket to failure Expect to use your own money Only limited amount from friends, family and angels; don t count on banks at this stage
A thousand miles journey starts from the first step