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Analysis: Developing high-growth entrepreneurs
Developed countries commonly have a significant amount of entrepreneurs in their population
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Developed countries commonly have a significant amount of entrepreneurs in their population. Entrepreneurs are necessary as a crucial driver of economic growth. They also provide job opportunities, so we do not have to rely on what is provided by the government or corporate sector. A dynamic business environment also stimulates business innovation, especially technological innovation, as business is required to be more efficient.
The 2014 Global Entrepreneurship Monitor (GEM) report shows that Indonesia is on the right track to achieve the desired entrepreneurial rate. The report stated that around 14.2 percent of adult Indonesians surveyed are or will be involved in entrepreneurial activities (also known as total early-stage entrepreneurial activity or TEA), such as establishing startups or managing newly formed enterprises.
This number is surprisingly higher than other Asian countries which score an average of only 13 percent. It is even higher than the 13.4 percent TEA score of the US, which is famous for its developed entrepreneurial ecosystem.
On the other hand Cooperatives and Small and Medium Enterprises Ministry data shows that the entrepreneurial rate in Indonesia is only 1.65 percent of the total population, or roughly 2.45 percent of the total adult population to give clearer comparison with GEM's data. There are many controversies among academics and the government about which number represents the best entrepreneurship conditions in Indonesia. This is actually somewhat undesirable, as not knowing exactly where we are could lead to misguided policies.
This article will stick to using the GEM data because it is comparable with other countries. The 14 percent TEA rate in Indonesia is quite high for a developing country, but does it mean Indonesia has a sound foundation of entrepreneurship? Let's dip further into the report.
There are two more indicators that we should highlight here: motivational drivers and job-growth expectations. GEM divides entrepreneurial motivation into two drivers. The first one is necessity-driven, which means individuals start businesses because there are no better options to obtain resources for living. The second one is opportunity-driven, which means individuals start businesses based on recognized opportunities.
Furthermore, in the survey opportunity-driven entrepreneurs were asked whether they started their business to earn money or to be more independent. This group was classified as improvement driven entrepreneurs. Meanwhile, job-growth expectations shows how many job opportunities will likely be created within five years of business establishment.
Indonesia's motivational driver is mostly opportunity-driven, reaching 78.57 percent of Indonesia's TEA, while necessity-driven amounts to 20.52 percent. These figures seem normal, but they are higher if compared with other ASEAN countries, such as Singapore, Malaysia and Thailand. These figures are also higher compared with developed countries such as the US.
Interestingly, Indonesia's improvement-driven entrepreneurs scored a TEA of only 37.95 percent, which is significantly lower compared with Singapore (70.81 percent), Malaysia (63.99 percent), Thailand (71.23 percent) and the US (66.93 percent). These findings mean that most Indonesian entrepreneurs are reluctant to improve or scale-up their business. They seem pleased to stay as micro, small or medium businesses.
It is also supported by low job-growth expectation figures, which show that 46.5 percent of TEA expect to open zero to five jobs, 4.6 percent expect to open six to 19 jobs and only 1.2 percent expect to open more than 20 jobs within 5 years.
These figures are clearly lower compared with other ASEAN and developed countries, which tend to have higher job-growth expectations especially for the category of six to 19 new job opportunities.
So how can Indonesian entrepreneurs become high-growth entrepreneurs? For this we can learn from the US, which has a long history of entrepreneurship and has experienced broad economic threats. However, they seem to understand that building sound entrepreneurship is not solely the government's task. Collaboration between the government, academics, the private sector and society at large is needed.
The US government has produced a series of policies to foster entrepreneurship. However, one of the most important of these was the US allowing immigrants to take part in businesses, causing dynamic assimilation in innovation and technology from various countries.
In 2009, up to 52 percent start-ups in Silicon Valley were founded by immigrants, and up to a quarter of all America's science and technology start-ups had somebody born abroad as their CEO or CTO. Right now, most US states are focusing on reducing the barriers to founding a business, which has resulted in a seventh ranking for the US in the 2015 World Bank Doing Business Index.
Academics also have a part to play in developing entrepreneurship in the US, as they act as economic engines with the proliferation of science parks, technology offices, business incubators and venture funds. Many tech-based start-ups are founded at universities, one of the most famous examples being how Stanford University supported the development of Google.
The private sector can also support entrepreneurship through business collaborations. One example is the ease with which entrepreneurs can access credit. The US' good performance in this regard is reflected in its second-place ranking in the 2015 World Bank Doing Business Index.
Besides the government, academics and the private sector, wider society also plays a significant role in supporting entrepreneurship. US citizens consider being an entrepreneur as a prestigious job, not a last option. Their perception of new business opportunities are high, as shown in the GEM report with more than 50 percent having positive opinions. Various business communities are also easily accessible, so start-ups can grow and learn from their predecessors.
Building a more vibrant entrepreneurship environment is necessary for Indonesia. The government, academics, private sector and society all have their own role to play in fostering entrepreneurship in Indonesia, and we can learn from the US' experiences.
The government should build more solid collaboration among ministries as they implement their own entrepreneurial programs. There are more than 20 ministries that have entrepreneurial programs. But a lack of coordination has resulted in many similar programs and participants.
Academics can start giving early entrepreneurial education, even in junior high school. Universities should act as business endorsers rather than just ivory towers. The private sector could contribute through effectively channeling their CSR funds, establishing business development services (BDS) or by acting as business incubators and embracing entrepreneurs as a part of their business chains. Meanwhile, society could improve its perception of entrepreneurs and start seeing them in a more positive light.
This would be very achievable as Indonesians are naturally creative and accustomed to limited resources, which are characteristic of successful entrepreneurs. Business incubators are the most effective way to develop high-growth entrepreneurs, since they are mentored intensively with various business, management and technical knowledge. Business incubators can also act as a funding source for start-ups. Collaboration among the government, academics, the private sector and society is needed to build effective business incubators.
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The writer is a researcher at Mandiri Institute
