Introduction
The entrepreneurial activity cross-national assessment by the Global Entrepreneurship Monitor (GEM) cycle is now in its eighth stage. The GEM began in 199 comprising of ten countries. However, the project in 2006 expanded to encompass forty-two countries. GEM being a principal research project in wide variety of countries aims at analyzing and describing the process of entrepreneurship.
The key objectives of GEM are to weigh the distinction between countries entrepreneurial activity level, to resurface factors that determine the degree of entrepreneurial activity and finally to identify policies that triggers entrepreneurial activity level. GEM project has constantly been viewed as a multinational research program.
In that case, it provides entrepreneurial sector annual assessments for various countries (Harding & Bosma, 2006, p.7). GEM plays a significant role in contributing to the understanding and knowledge of the unique processes of entrepreneurial.
From time immemorial, there exists no data that can provide consistent and comprehensive cross-country information. Furthermore, no data can measure the world context in terms of entrepreneurial activity. This is what makes GEM to be unique.
It is estimated by GEM that the level of early stage involvement of entrepreneurial activity occurs through the combination of nascent entrepreneurs’ prevalent rate and business owners that are new. Nascent entrepreneurs are individuals who are in the verge of opening up new businesses.
Most of these individuals are aged between 18-64 years. Furthermore, they have always involved themselves in coming up with new business ideas each year. For an individual to qualify for nascent category, it is a must for him or her to have a share in the emerging business. Additionally, they are supposed not to have paid any salaries or wages for a period of three or more months.
On the other hand, owners of new business are those who are active as business managers. As a result, they should have paid salaries or wages for three months or more. However, these should be less than forty-two months.
Despite some individuals being involved in business early stages, there are those who have been in business for a long period acting as owners as well as managers. The GEM’s estimate includes all these people. GEM specifically concentrates on individuals who have paid salaries or wages for more than forty-two months.
The above measurements are essential in conveying distinct information with regards to a country’s entrepreneurial landscape. Entrepreneurs in the early stage illustrate a country’s dynamic entrepreneurial susceptibility.
In that case, it demonstrates the population percentage able and willing to participate on an entrepreneurial venture. Owners of established businesses indicate the population percentage involved actively in the operation of a sustainable business. The paper aims at demonstrating global entrepreneurs monitor in Canada and Australia.
Literature Review
Entrepreneurship is a phenomenon that is very complex. It constitutes a great dimension of factors and contexts. With regards to entrepreneurship analysis, the research on the establishment of a new firm has held a significant place in the development of the economy, employment creation and renewal (Todtling and Wenzenbock 2003, pp. 351–370).
The emergence of new business activities can be recognized in every country. However, researchers who are greatly concerned in the area of entrepreneurship across various countries have proved that there exists a great distinction in the degree of entrepreneurial activity. Moreover, these distinctions have remained stable for quite some time (Uhlaner and Thurik 2007, pp. 161–185; Van Stel etal. 2005, pp. 311–321).
Previously, researchers have tried to elaborate entrepreneurial activity levels through the use of different countries economic conditions comparative analyses. From these studies, empirical evidence has been provided by the presence of a U-form relationship. This is between the degree of national entrepreneurial activity and economic development (Carree et al. 2002, pp. 280).
With the utilization of Global Entrepreneurship Monitor (GEM), it is observed by Wennekers et al (2005, pp. 293–309.) that there is an existence of a U-form relationship between income per capita and the nascent entrepreneurship.
The u-relationship is a clear indication of negative correlation between economies and nascent entrepreneurship. For instance, as the economy expands, there is a corresponding decline in nascent entrepreneurship. However, nascent entrepreneurship can establish itself in economies that are highly developed.
On the contrary, the degree of entrepreneurial activity being positively related to economic development as discussed above, it is noted that countries such as the United States, Canada, Switzerland, Australia, France, Japan and Belgium are characterized by the same degree of economic development (Van Stel et al. 2005).
Nevertheless, Switzerland, Japan, France and Belgium experiences entrepreneurial low activity levels. The remaining three countries (the United States, Australia and Canada) exhibit high levels of entrepreneurial activity. This is verified by the GEM Executive Reports.
From the conclusions made from the above discussions, it is evident that the difference that exists in terms of entrepreneurial level of activity arises because of various reasons. This reason helps in explaining why countries may have the same income levels but distinct entrepreneurial activity ratio.
The major reasons may consist in cultural differences and economic status (Hofstede et al 2004). Culture differences persistence is the principal reason why there exist distinctions when it comes to entrepreneurial activity. Cultural aspects as compared to economic conditions are permanent in nature.
Culture differs from country to country. As a matter of fact, it shapes an individual motives and personality trait development in the society. Thereby, making people exhibit attributes that are unique to a specific society. Countries differ in terms of work roles, values and beliefs. Culture differences can be grouped into four major categories.
These are uncertainty violence, feminity-masculinity, power distance and individualism-collectivism. Afterwards, a fifth dimension “short-term verses long-term” orientation is added by Hofstede (1991).
All these dimensions in terms of culture are vital in identifying key culture aspect which is highly related to the entrepreneurial behavior potential (Thomas and Mueller 2000, pp. 287–301; Kirkman et al. 2006, pp.285–320). Individualism-collectivism exerts more value to a group or an individual.
For example, in a country where majority of its population possesses entrepreneurial value, automatically, entrepreneurial behavior will be prevalent. Therefore, individuals with greater spirit of entrepreneurship have the highest probability of creating new firms.
Individualism is linked with an individual motivation to accomplish certain goals or in some cases individuals who are in pursuit of goals that are personal. Individualism builds an entrepreneur profile.
From the above discussions, it is evident that entrepreneurial activity and individualism-collectivism relationship varies from country to country depending on the development level. Similarly, individualist culture has a significant correlation with entrepreneurial activity. This is in reference to countries having high level of disposable income.
When it comes to countries with low level or medium income, collectivism exhibits a greater correlation to entrepreneurial activity. The comprehension of the existing relationship between differences in culture and entrepreneurial activity level is crucial in the development of policy measures whose aim is to encourage each country entrepreneurial activity.
A fundamental role is played by public institutions. For example, through their policies, these institutions strengthen the establishment of activities that are either productive or unproductive (Baumol 1996, pp. 3–22).
Nevertheless, for purposes of pushing entrepreneurial activity forward, it is essential if people recognize the factors that are associated with entrepreneurial activity. Additionally, people need to recognize the strength of these factors relationship and factors that can get influenced by the available policy measures (Reyes & Pillos 2011, pp.23-37).
Economic Development and Entrepreneurial Activity
From the empirical researches which are carried out, there exists a positive correlation between economic development and entrepreneurial activity. According to the findings from the Organization for Economic Corporation and Development (OECD), there is a positive correlation between economic growth and start-up rates as recorded among twenty countries (OECD 2001).
The positive relationship is as a result of entrepreneurship high growth. Audretsch (2000a, p.10) points out that, as opposed to traditional theories which perceive that economic growth will be retarded with entrepreneurship, new theories claims the opposite growth will be generated and stimulated by entrepreneurship.
However, there is a hot debate among economists regarding the influence of entrepreneurship activity on the development and growth of the economy. As a result, people keep questioning themselves about the factors that influence economic development and entrepreneurial activity.
The GEM developed a model indicating that total early-stage entrepreneurial activity (TEEA) is greatly streamlined by a set of factors referred to as “entrepreneurial framework conditions” (EFCs). These factors act as the foundation for entrepreneurial activity.
However, there exist entrepreneurial framework conditions that are non-economic. This includes government programs and policies, social institutions, training and education, demography and technology. These factors influence entrepreneurship start-up rates (Monsen & Frederic, 2011, p.189).
Factors that stimulates entrepreneurial Activity
Per capita income: this is the most cited factor. Per capita income and early-stage entrepreneurial activity demonstrates their strong quadratic affiliation (Minniti et al. 2006) which is an economic development proxy. Apart from Per capita income, there are other economic factors that impacts on entrepreneurship. Unemployment acts as a pushing factor for individuals to be self-employed (Audretsch and Thurik 2001).
On the other hand, opportunity costs are determined by the welfare benefits and social security. Furthermore, disparity in income triggers entrepreneurship as a self-employment push and full factor.
Technological variables: variables such as computers availability, penetration of the broadband and internet access also plays a significant role. Technology is embodied with knowledge capital referred to as “production factor”. This is evident in economies that are leading (Romer 1986, p.1003).
Demographic factors: various demographic factors such as age distribution, population growth, ethnicities proportion, education attainment level and participation of female in the labor market plays a significant role in entrepreneurship (Verheul et al.2002; Wennekers et al. 2002, pp. 300).
With reference to age distribution, nascent entrepreneurship prevalence rates are related to specific age groups. Some research proves that nascent entrepreneurs have attained higher education average level as compared to their counterparts in a controlled sample. It is also confirmed that there is a high correlation between entrepreneurship and education (Frederick 2006).
Nevertheless, from a comparative study performed across fourteen OECED countries, high level education tend to be interrelated to self-employment smaller proportion.
Some attention has been diverted to gender participation on labor. As compared to men, early-stage entrepreneurship and female labor association is extremely low. The reason behind all these is that men as compared to women are likely to start up a new firm (Delmar and Davidson 2000, pp.1–23).
Public institutions affecting entrepreneurial activity are such as government policies that are specific, fiscal legislation and education system. All these are focused on firms that are new. On the side of the demand, opportunities to start up a business are influenced by regulatory policies that lower entry barriers and thereby increasing competition.
On the side of the supply, institution plays a significant role in motivating entrepreneurial preferences and capabilities. These institutions are such as agencies dealing with economic development, the media, multinational corporations interested in entrepreneurship and education institutions. The economic development agencies help in strengthening motivation and abilities.
Start-up business likelihood is influenced by financial resources including start-up support schemes and venture capital. Lastly, fiscal legislation comprising of tax breaks and tax rates, market labor regulation, bankruptcy legislation and the social security system such as the rates of replacement and self employed relative entitlements impact on occupational opportunities risks and rewards.
The taxes impact on entrepreneurial activity level is a phenomenon that is paradoxical and complex (Verheul et al. 2002).
Tax rates that are extremely high may reduce an individual motivation to be an entrepreneur in future. Similarly, when an individual becomes an entrepreneur, it might be away of evading tax liabilities. It was found out by Parker and Robson (2003) that personal income rates are significantly and positively correlated to self employment.
Furthermore, self-employment is significantly and negatively associated with unemployment rate of benefit replacement and the social security contributions by the employers. The correlation between entrepreneurial activity and social security is two sided. To begin with, entrepreneurial activity exhibits a positive correlation to social security. Thereby, in cases of failure in business, there is the establishment of a safety net.
The development of the economy and the activity of the entrepreneur correlation is a phenomenon that is complex. However, Belso-Martinez (2005, p.147) concludes that, “it seems reasonable to assume that there exists an equilibrium level of the entrepreneurship rate.”
The equilibrium entrepreneurship rate plays a significant role in economic development. In that case, it is extremely dangerous when an economic development of a country is below rather than above the trend line.
Any shift from the rate of equilibrium entrepreneurship results to negative impacts on the development of the economy. In order to improve on the economic development, various policies have been suggested. These are improvement on the technology, increase on the supply of entrepreneurs, increase on the demand for services and goods among others.
Therefore, nations that are advanced such as Australia and Canada should divert all their attention to research and development as well as start-ups incentives. These will aim at boosting entrepreneurial activity. Countries in the developed world should divert all their resources in promoting entrepreneurs education, economies of scale maximization and boosting on the foreign direct investment (FDI).
Measuring Competitiveness
The 2010-2011 Global Competitive Report has been released to the public when there is uncertainty in the characteristic of the global economy. Growth has been experienced in various countries as a result of the government spending on stimulus. This has been performed with an aim of counterbalancing the experienced global financial crisis. However, economies advancement differs from country to country.
For instance, they are occurring at distinct speeds and a “double dip” risk ought to occur in numerous countries. As a mater of fact, emerging economies are doing well as characterized by their healthy growth whilst those economies that are advanced continues facing challenges such as spiraling debt, constant unemployment and weak demand.
To make matters worse, they are also struggling with labor and financial market reforms among other issues. For those markets that are emerging, the International Monetary Fund (IMF) predicted in 2010 a growth rate of six point two five percent (6.25%) in comparison to the two point two five percent (2.25%) for economies that are advanced.
In the light of the above discussion, policy makers are being faced with extremely difficult challenges when it comes to economic management. Economists are taking active actions in ensuing recession and addressing it. Governments, on the other hand, are taking initiative to slow down their deficit spending. This will help in controlling the escalating debts.
If countries do not commit themselves in controlling their spending, then their future ability to channel resources in various investments such as education, health and infrastructure will be compromised. The three investments are essential for competitiveness and sustainable development. National competitiveness can be measured using Global competitive index.
This index captures national competiveness macroeconomics and microeconomics foundations (Schwab 2010). Factors such as institution policies determine the productivity level of a country. Additionally, these factors are always highly competitive. The economic sustainability of a country is determined by the level of productivity. Highly competitive economies enable its populations to have income levels.
The productivity level determines the rate of returns from the investments performed by a country. The investments can be in terms of human, technological or physical. The rate of returns forms the foundation of any economy that needs to grow. Therefore, an economy that is more competitive has the capability of growing faster both in the long term and in the medium term.
The competitiveness concept therefore involves components that are both dynamic and static. However, high income level sustainability is determined by a country’s productivity level. Additionally, it is one of the principal determinants of the investment returns. Investment returns play a significant role in explaining the growth potential of an economy.
Competitiveness is made up of twelve principal pillars. These are such as institutions, infrastructure, training and higher education, macroeconomic environment, primary and health education, good marker effectiveness, efficiency in labor market, development of financial markets, technological readiness, innovation, market size and sophistication of business. All these pillars support each other.
As a result, a fault in one pillar impacts other pillars. For instance, innovation cannot be achieved without the availability of a workforce that is well trained and educated. These workforces are vital in absorbing the emergence of new technologies. Moreover, without financing that is sufficient, for research and development (R&D) or presence of good market that is efficient it will be impossible to sell the new technologies (Schwab 2010).
Summary of the Competitiveness 12 pillars
2010-2011 Global Competitiveness Index Ranking
There exists no alteration in the countries ranked number one to ten as they still maintain their position as per the previous year. This is a clear indication of their economic stability. One thing that strikes an individual eye is the insignificant decline among nations in their stage of development that is advanced and most driven by innovativeness.
There is a score improvement in countries at the second and first stage of economic development. Generally, as the industrialized economies competitiveness continues worsening, those of countries that are developing are improving leading to a small performance convergence (Schwab 2010). This part will focus on Canada and Australia.
Canada has been ranked 10th after dropping one position from the top. However, it records a performance that is stable. Canada gains from markets that are highly efficient. As a results its goods have been ranked 11th whilst its labor comes 6th with financial markets taking the 12th position.
Moreover, its institutions that are transparent and well functioning are ranked 11th whereas its infrastructure that is excellent takes the 9th position. Canada as a country has succeeded in taking care of its human resources. Its primary and health education takes the 6th position whilst its higher training and education takes the 8th position.
To enhance Canada’s productive potential and competiveness into the future, there is a need to improve on the innovative and sophistication potential of the sectors that are private via channeling more resources to research and development and maximizing productivity on the value chain.
Australia falls under countries in Europe and Central Asia. These countries have been greatly impacted by the world economic crisis. As a result, there are increased levels of unemployment, demand as well as sovereign debt sustainability concerns.
Overall, Europe remains recognized as the famous region when it comes to competitiveness in the world. Countries in Europe found themselves at the top ten lists with few being among the top twenty countries and Australia is one of them being ranked 18th position. Globally, it is evident that high entrepreneurship rates do not necessarily translate into the development of the economy.
Additionally, countries need to customize their policy measures to conditions that are local. Similarly, countries should understand that economic development can be suppressed by the existence of actions that overprotect workers, temper with incentives or involve welfare passively even if there is presence of high level of entrepreneurial activity (Schwab 2010).
Summary
There exists a systematic correlation between the economic development level of a country and its entrepreneurial activity type and level. Countries exhibiting equal per capita gross domestic product (GDP) have similar entrepreneurial activity level. However, there exists a distinction among countries exhibiting distinct levels of per capita GDP.
Countries with low levels of per capita GDP, numerous small enterprises characterize their industrial structure. The growing demand in the market can be satisfied by per capita income increase. The market needs can be met by firms that are large and established. This can be possible through industrialization and economies of scale.
In addition to that, the role of these industries in building of the economy is enhanced by economies of scale and industrialization. This role is increasingly accompanied by the decline in the number of emerging enterprises. The reason for this is a large number of people who get employed and become stable in industrial plants.
As a result, income for these people increases and consequently there is an increase in the role entrepreneurial sector plays. Majority of people becomes in possession of adequate resources to indulge in business individually in an economic environment that enables opportunities exploitation.
In economies characterized by high income, such as Canada and Australia, entrepreneurial business through an expanding service sector which is characterized by the increased development in technology and consumer, enjoys a competitive newly found advantage.
The increase of entrepreneurial activity depends on factors such as countries cultural factors, institutional and demographic characteristics. Regardless the size of the firm and development level, the behavior of entrepreneurs is a significant innovation engine and the economy growth relies on them.
This is because of their ability to exploit opportunities that have not been taken advantage of. In high income countries, the early-stage entrepreneurial activity is extremely low. This is in reference to countries in the European Union and Japan. GDP high level countries show an increased level of early-stage entrepreneurs. This is a clear indication of increased new opportunities for entrepreneurs.
Given the correlation between per capita GDP levels and entrepreneurial activity, the GEM 2006 study report divides countries into two main groups. This was done basing on their per capita GDP. These countries were categorized as high and middle income countries. Australia and Canada fall under high income countries.
The leading countries in the rate of ownership of established countries and early-stage entrepreneurial activity are the middle income countries. The distinction between the middle and high income countries prevalence rate is quite significant at a confidence level of zero point one.
Various factors play a significant role in encouraging an individual to start a business. These are the distribution of income, perceptions, gender, education and occupation. All these are categorized under socio-economic factors. The distribution in age for early-stage entrepreneurs has been compared between the middle and high income areas.
Between individuals aged 25-34 years the most prevalent is the early-stage entrepreneurial activity as compared to individuals aged 55-64years. In comparison to early-stage entrepreneurs, the older population owns businesses that are already established regardless of the country. In terms of gender, men have a greater probability of starting up a business as compared to women.
Women play an inactive role when it comes to starting up a business in both high and middle income countries. In countries such as Philippines, both women and men have an equal chance of being entrepreneurially active.
There exists a gender gap between the owners of an established business and the early starters. In comparison to middle income countries, high income countries gender gap is highly prevalent between the two groups of entrepreneurs. The main reason for the above conclusions is that in middle countries the labor market access by women is highly restricted resulting to their start of their own business.
On the contrary, in countries with high incomes such as Canada and Australia, women can have access to safety nets and social benefits which might hinder them from participating in business activities. Work factor is another thing to take into consideration.
The working population has the capacity and ability to start up a business either part-time or full time. As a result of unemployment, we have the early stage entrepreneurs. Household income and education also plays a role in engaging people in entrepreneurship.
Conclusion
The Global Entrepreneurs Monitor project gives a detailed description of the activities of the entrepreneur around the globe. This is done with an aim of providing a platform for policy implications debate. An important role needs to be played by the government. This is by encouraging the activities of the entrepreneurs. The entrepreneurs’ role varies depending on the country’s level of income.
Entrepreneurs operate in institutional environment such as cultural, legal and political which impacts greatly on their activity directly. Consequently, these institutions affect a country’s economic development. In every cultural setting and country, there is a presence of entrepreneurs. Globally, all governments are responsible for creating a conducive environment for entrepreneurial activity.
This is by establishing institutions that favor entrepreneurial activity that ranges from monetary stability, property rights rules enforcement and adhering to them, ensuring of transparency both financially and legally, ensuring openness in markets and putting in place an environment that allows free and fair competition.
Apart from these principles entitled to the government, governments should know that there are various forms of entrepreneurs.
Thus, with regards to the entrepreneurial policy, the institutions responsible for creating them should understand that one set of policy cannot serve them adequately well as a result of their diversity. Policies that are effective should be tailored from the context that is local.
This should depend on a country’s entrepreneurial portfolio intended to be enhanced. Since GEM inception in 1999, countries have been provided with multiple dimension of information regarding entrepreneurial activity.
Therefore any interested individual can use this information to build themselves. Individuals might range from academicians, entrepreneurs and policy makers or any person who is passionate and interested in entrepreneurial activity.
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