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The Irrepressible Entrepreneur

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Irrepressible spirit of entrepreneurs and SMEs will drive the economy in the next fi ve years, despite obstacles and economic conditions

Irrepressible spirit of entrepreneurs and SMEs will drive the economy in the next fi ve years, despite obstacles and economic conditions

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  • 1. Regus, May 2013The IrrepressibleEntrepreneurIrrepressible spirit of entrepreneurs and SMEs will drive the economyin the next five years, despite obstacles and economic conditions
  • 2. 1ContentsManagement Summary............................................................................................2Key Findings and Statistics...........................................................................................2Introduction...............................................................................................................3Once an entrepreneur always an entrepreneur....................................................4Deterrents to Growth....................................................................................................5Big ambition.................................................................................................................7Conclusion.................................................................................................................8Country Highlights....................................................................................................9Methodology............................................................................................................10About Regus............................................................................................................11
  • 3. 2Management SummaryOnce an entrepreneur, always an entrepreneur. Eventhough they might have encountered huge challengesin starting and growing their businesses, or even falleninto business ownership through redundancy, the vastmajority of entrepreneurs would do it all over again.It is generally agreed across the world that smalland micro businesses will lead growth over thenext five years. The only exceptions are Germany,the home of the “Mittelstand”, and India where itis believed that medium-sized companies will takethis role.However, existing entrepreneurs say that there aremajor deterrents in the shape of lack of access tocredit, “red tape” and lack of government supportas well as the current challenging economicconditions. Despite this, and the fact that a quarterof entrepreneurs say they were “forced” intosetting up businesses through losing their job orbeing made redundant, the entrepreneurial spirit isso strong that the vast majority would start again ifthey needed to.The lack of institutional support means thatentrepreneurs will continue to increasingly favourflexibility so that they can rapidly scale operationsup or down according to need and so investcapital in growth strategies rather than in lengthyleases. Already, more than half of entrepreneursuse flexible working locations for more than halfthe week, compared with 39 per cent for thosethat do not own their businesses.Key Findings and Statistics• Globally, half of business people believe thatsmall businesses will drive growth in the nextfive years;• Germany and India prove exceptions asrespondents are more likely to think thatmedium sized firms will drive the economy;• Given the important role that small businessesare expected to play in the next five years andtheir contribution to GDP and employmentacross the globe, Regus asked entrepreneurshow they felt about conditions for business;• Although 55% of entrepreneurs report thatcurrent economic conditions are a deterrent fully85% would start again, testament to the highlyadaptable and resilient entrepreneurial spirit;• This in spite of the fact that a quarter ofentrepreneurs today say they were ‘forced’into this decision when they lost their previousemployment or were made redundant (26%);• The biggest deterrents to setting up businesstoday as reported by existing entrepreneurs arelack of access to credit (76%), red tape (74%)and lack of government support (61%);• Given the lack of institutional support anddifficult access to credit, entrepreneurswill be turning even more to more flexibleworking practices such as flexible workspacethat allows them to upscale or downscaleoperations rapidly and invest all their capital intogrowth strategies rather than lengthy leases;• Already 58% of entrepreneurs use flexibleworking locations for more than half theworking week, compared with only 39% nonbusiness owners;
  • 4. 3IntroductionThe vast majority of businesses are small andmedium-sized enterprises (SMEs). In the EuropeanUnion as a whole, for example, SMEs in 2012 providedtwo out of three private-sector jobs and accounted for58 per cent of gross value added (a measure that iscalculated by deducting intermediate costs from salesand includes depreciation, rewards to labour, capitaland entrepreneurial risk).1It added that SMEs accounted for 99.8 per cent ofnon-financial enterprises, equating to 20.7 millionbusinesses. The overwhelming majority (92.2 percent) were micro-enterprises, defined as thosewith fewer than 10 employees.However, the situation varies somewhat betweenindividual countries. Germany, unsurprisingly,has the best-performing SME sector in the EUin terms of the numbers of jobs provided andthe value added created. It also has more smalland medium-sized firms as opposed to micro-businesses than most other member states.2Inthe UK, these businesses (defined as employingup to 250 people) accounted for 99.9 per centof all private-sector businesses in 2012.3Thisrepresented no change over the year before andwas virtually unchanged since 2000. The samereport found that SMEs accounted for 59.1 percent of private-sector employment and 48.8 percent of private-sector turnover.In the USA, meanwhile, small businesses makeup 99.7 per cent of firms and account for 49.2 percent of private-sector employment. Of particularimportance is the fact that they account for justunder two-thirds of net new private-sector jobs.In addition, US small businesses make up 98 percent of companies exporting goods, accountingfor 33 per cent of export value.4Arguably, SMEs are even more important indeveloping countries, where they can have aneffect on the national economies totally out ofproportion to the cost of starting and maintainingthem. In India, for example, there are more than11 million SMEs (90 per cent of the total numberof industrial units) producing more than 8,000products and accounting for 35 per cent of Indianexports.5In terms of spending for SMEs Chinaleads investment with just over US$400b, ofwhich US$385b is bank lending. The US, wherea more varied range of debt and equity finance isavailable, follows at around US$116b. The samereport reveals that Brazilian investment is US$17b,on a par with South Korea and higher than Indiawhere it only reaches US$9b. Indian investment isin fact lower even than Mexico (US$10b).6In spite of this overwhelming evidence of theimportance of SMEs as “the engines of growth”in economies throughout the world, entrepreneurssee many deterrents to their activities. In order to findout what is holding back entrepreneurship at a timewhen growth is vital to help economies step out of adownturn, Regus commissioned research canvassingthe opinions of over 26,000 business managers andowner in more than 90 countries and found that halfcite the state of the economy and market dominationby large corporations as serious hindrances. But thetop three deterrents are lack of access to credit, redtape (each quoted by a global average of more than70 per cent) and lack of government support (citedby 60 per cent on average).1 EU SMEs in 2012: at thecrossroads, Ecorys for theEuropean Commission,September 20122 EU SMEs in 2012: at thecrossroads, Ecorys for theEuropean Commission,September 20123 Business PopulationEstimates (BPE) for theUK and Regions 2012,Department for Business,Innovation and Skills, 17thOctober 20124 Annual report of the office ofeconomic research FY 2012,SBA, January 20135 Role of SME in IndianEconomy, Ruchika Jeswal ofthe Institute of ManagementStudies, National Conferenceon Emerging Challenges forSustainable Business 20126 Ernst & Young, Funding forGrowth, June 2012
  • 5. 4Once an entrepreneuralways an entrepreneurIt is clear that becomingan entrepreneur is anattitude of mind. For allthe talk of the challengesof surviving in tougheconomic conditionsand competingagainst powerful largecompanies, not tomention the problemsof red tape, lack ofgovernment supportand gaining access tofinance, entrepreneursreally believe in and enjoywhat they do.Eighty-five per cent of entrepreneurs globallyreported that given the chance they would do it allagain. As Figure 1 shows, this figure tops 90 percent in Mexico, Germany and the Netherlands.Even at the bottom of the scale, in Australia andBrazil, more than 75 per cent of entrepreneurswould dive right back in again.Such findings are all the more impressive giventhat, as Figure 2 shows, about a quarter could betermed “forced” entrepreneurs. In Canada, Franceand the UK as many as a third of entrepreneursare starting out in this way.60% 65% 70% 75% 80% 85% 90% 95% 100%NetherlandsBrazilGermanyMexicoSouth AfricaJapanGlobal AverageFranceCanadaBelgiumChinaUKIndiaUSAAustralia0% 5% 10% 15% 20% 25% 30% 35% 40%UKJapanFranceCanadaBrazilUSASouth AfricaAustraliaGlobal AverageChinaNetherlandsMexicoIndiaBelgiumGermanyEntrepreneurs that would start all over again‘Forced’ entrepreneurs that set up alone as a result of beingmade redundant/loss of their former employmentFigure 1Figure 2
  • 6. 5Deterrents to GrowthAs the report on the state of SMEs in the EUpoints out, these are challenging times for allbusinesses, and smaller enterprises – whileretaining their central role – have not beenimmune. The study found that – while there weresome variations in performance between countries– there was a general “struggle to recover to pre-crisis levels of value added and employment”. Thisis reflected in the findings of the Regus research.As Figure 3 reveals half of entrepreneurs said thecurrent economy was a key issue. This complaintwas closely followed by a perception that marketswere dominated by large corporations. However,the big three deterrents were identified as lack ofaccess to credit, red tape and lack of governmentsupport.These are familiar complaints and ones thatgovernments have been seeking to address withvarying degrees of commitment and success. Thefinance issue is especially important, as evidencedby its place at the top of the deterrents cited inFigure 3. A recent report by global accountancyfirm Ernst & Young sets out the situation:“Despite being key engines of economic growth;accounting for 50 per cent of employment in mostG20 countries, SMEs attract just a tiny proportionof overall investment. Overall investment in SMEsacross the G20 stands at US$714bn, 6 percent of the total US$11,507bn for all forms ofinvestment.”7Central banks in the UK, the USA, the Eurozoneand elsewhere have sought to help the situationby keeping interest rates low and through variousincentives, such as introducing more money to thefinancial system via what is known as quantitativeeasing. But the effects have been limited.In France, for example, the government in October2012 pledged to provide Euro 42bn in financialaid to cash-strapped small and medium-sizedbusinesses via a new public investment bankaimed at boosting growth and innovation.8An illustration of the problems confrontingsmaller businesses is provided by Belgium,where, according to the European Commission,“SMEs still have greater access to public financialsupport (including guarantees) than similar firmsin other EU countries”9. However, the documentpointed out that the indicators measuring accessto private capital “also sometimes point inopposite directions”, so that, while the share ofunsuccessful loan applications was much lowerin Belgium than in other EU countries (only 5 percent, compared with the EU average of 23 percent), it seemed to cost more to take up a loanof less than EUR 1m in Belgium, because theinterest spread is larger than for loans above thatthreshold. It also stressed that the low rate ofunsuccessful loans may stem from some potentialapplicants being putting off in the first place.Lack ofaccessto creditRedtapeLack ofgovernmentsupportCurrenteconomyMarketdominationby largecorporations0% 10% 20% 30% 40% 50% 60% 70% 80%Main deterrents to entrepreneurshipFigure 37 Funding the Future, Ernst &Young, 30th May 20128 France promises to aid SMEswith new 42bln euro bank,Reuters, 17th October 20129 Access to finance Belgium,The European CommissionEnterprise and Industry
  • 7. 610 Access to financeNetherlands, The EuropeanCommission Enterprise andIndustry11 Red tape report, TheCanadian Federation ofIndependent Businesses.January 201312 Supporting innovation inAustralian SMEs, the HonBrendan O’Connor MP, 3rdAugust 2012The Netherlands is trailing the EU averagein access to finance, with the Dutch rate ofunsuccessful SME loan applications at almostdouble the EU average at 54 per cent against 23per cent. Moreover, SMEs that did obtain loans ofEUR 1m or less paid a much higher rate of interestthan their peers elsewhere in the EU.10An indication of the effect of red tape – cited as amajor deterrent by almost as many entrepreneursas complained of lack of access to credit – isprovided by the example of Canada. A recentstudy11calculated that the cost of regulation toCanadian businesses of all sizes was $31bn in2012, compared with $32bn in 2008 and $33bnin 2005, when the previous reports were issued.Importantly, the cost of annual regulation peremployee decreases as the size of the businessdecreases – reaching $1,146 for Canadiancompanies with more than 100 employeescompared to fully $5,942 for businesses withfewer than 5 employees, possibly reflectingthe lack of dedicated resources to deal withcompliance issues at smaller organisations.The third main deterrent – lack of governmentsupport – is, again, a familiar complaint fromSMEs and apparently at odds with the tributesthey receive from politicians, policymakers andcommentators for their role in economies aroundthe world. It could also be said to be hard tosquare with entrepreneurs’ often expressed go-it-alone mentality.As Figure 4 indicates, dissatisfaction with levels ofgovernment support varies considerably aroundthe world. Those least satisfied are entrepreneursin France, China, Belgium, Brazil and SouthAfrica, while those from the USA, Canada, theNetherlands and Japan are most satisfied.Australia, which like the UK is close to the globalaverage, is one country where politicians are tryingto do more to foster a culture of innovation. In astatement published in August 2012, BrendanO’Connor, minister for small business, said thegovernment was providing significant supportfor education, research, business and thedevelopment and maintenance of a skilled labourmarket.12Australia boasts a range of policies,including tax credits and access to grants forSMEs, designed to help smaller businesses tocompete.Inevitably, there is some variation betweencountries in the importance attached to the bigthree. For example, in India and South Africaaccess to credit and red tape have almost thesame ranking, with government support slightlylower, while in China access to credit andgovernment support are ranked similarly with redtape slightly lower. In fact, in China entrepreneursmake red tape the least important of the big threedeterrents and identify market domination by largecorporates as the top issue. Interestingly, Germany– despite the success of its small and medium-sized businesses – is the only European countrywhere red tape is the greatest deterrent. Red tapeis a top problem also in Brazil, South Africa andMexico.AustraliaUSABelgiumBrazilCanadaChinaFranceGermanyGlobal AverageIndiaJapanMexicoNetherlandsSouth AfricaUK0% 20% 40% 60% 80% 100%Rating of top three deterrents to entrepreneurship by countryAccess tocreditRed tapeGovernmentsupportFigure 4
  • 8. 7There are also interesting similarities betweencountries in their attitudes towards deterrents. So,the Netherlands is more like the USA than the UK,particularly regarding the opinion of governmentsupport, while Japan, Australia and Canadaare similar in clearly ranking access to credit asthe biggest deterrent, with red tape and lack ofgovernment support following at relatively evenintervals. In France and Belgium, by contrast,access to credit is still top of the list, but it is muchmore closely followed by red tape and lack ofgovernment support.Big ambitionOn average, half of respondents believe that smallbusinesses will be the main drivers of the economyover the next five years (Figure 5). By contrast,only 18% per cent believe that organisations withmore than 250 employees will drive growth.However, at a country-by-country level there isa wide range of opinions, with respondents inSouth Africa most convinced of this and thosein Germany – where there is a strong medium-sized business sector – least convinced (Figure 6).The USA, which has some of the world’s largestcompanies, is also below the global average in thisregard, while the UK is, with Australia, just aboveaverage in this belief.Small0-49employeesMedium50-249employeesLarge250+employees0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50%South AfricaGermanyNetherlandsBelgiumCanadaBrazilUKAustraliaGlobal AverageFranceMexicoUSAChinaJapanIndia0% 10% 20% 30% 40% 50% 60% 70%Size of business most likely to drive the economy in the nextfive yearsRespondents that expect small businesses to drive theeconomy in the next five yearsFigure 5Figure 6
  • 9. 8ConclusionThese are challenging times for all businesses, butentrepreneurial drive still comes out strong. Respondentsglobally confirm that the best chances of growth comefrom micro, small and medium-sized enterprises.With many organisations struggling just to survive,it would seem that the old adage about ‘thegoing getting tough’ still holds true, although,perhaps surprisingly, ‘forced’ entrepreneursare just as tenacious as those who were led bycircumstances to set out on their own. But is clearthat – with access to finance still tight, and redtape and lack of government support still seenas problems –these businesses will need to beflexible to navigate choppy waters and succeed.Whether responding to new markets openingup or government initiatives, they will need to beconstantly alert.Businesses that are able to react to newopportunities and extricate themselves from thoseare not going according to plan are going to bethe ones that thrive in an uncertain world. Withmoney and other resources tight and support toentrepreneurs limited, business owners in particularneed to be able to devote their resources to spottingand capitalising on openings rather than worryingabout issues like lengthy property leases and otherhindrances. Success in the 21st century is all aboutagility and adaptability and entrepreneurs alreadyshow that they strongly favour flexible workingcompared with non-business owners. They aretherefore likely to increment their flexibility movingforward and ensure they grasp the opportunitiesoffered by flexible office space arrangements thatleave them plenty of room for maneouver and toinvest in growth.
  • 10. 9Country HighlightsUKMore than a third of UK entrepreneurs (38%) wereforced into starting their own business by losingtheir jobUSA30% of USA entrepreneurs report that they wereforced into setting up their own firm as a result ofbeing made redundant or losing their jobFranceMore than a third of French entrepreneurs (37%)were forced into starting their own business bylosing their jobGermanyGerman respondents are most likely to believe thatmedium sized businesses will lead the economy inthe next five years instead of small firmsChina76% of Chinese entrepreneurs believe that marketdomination by large corporations is a deterrent topotential entrepreneurs, more than in any othercountryIndiaIndian respondents are most likely to believe thatmedium sized businesses will lead the economy inthe next five years instead of small firmsBelgium58% of Belgian respondents believe small andmicro businesses will drive the economy in thenext five yearsThe Netherlands60% if Dutch respondents believe smallbusinesses will drive the economy in the next fiveyearsBrazil55% of Brazilian respondents believe small andmicro businesses will drive the economy in thenext five yearsSouth AfricaSouth African respondents are most confidentthat small businesses will drive the economy in thenext five yearsJapanJapanese entrepreneurs are the least likely to havestarted their own businesses through losing theirjobsAustraliaA quarter of entrepreneurs started out as a resultof being made redundant or losing their jobCanada51% of Canadian entrepreneurs believe thatmarket domination by major corporates is adeterrent to entrepreneurshipMexicoFully 92% of Mexican entrepreneurs would startagain if they could
  • 11. 10MethodologyOver 26,000 businessrespondents from over90 countries wereinterviewed duringJanuary 2013.These were sourced from Regus’ global contactsdatabase of over 1 million business-peopleworldwide which is highly representative of seniormanagers and owners in business across theglobe. Respondents identified as entrepreneurswere asked about current deterrents toentrepreneurship and the origins of starting outon their own. Respondents were also asked toidentify which size of business would drive growthin the next five years in their country.The survey was managed and administeredby the independent organisation, MindMetre,www.mindmetre.com= 500Respondents identified as entrepreneurs wereasked about current deterrents to entrepreneurshipand the origins of starting out on their own.Respondents were also asked to identify which sizeof business would drive growth in the next five yearsin their country.
  • 12. 11About RegusRegus is the world’s largest provider of flexibleworkplaces, with products and services rangingfrom fully equipped offices to professionalmeeting rooms, business lounges and theworld’s largest network of video communicationstudios. Regus enables people to work theirway, whether it’s from home, on the road orfrom an office. Customers such as Google,GlaxoSmithKline, and Nokia join hundredsof thousands of growing small and mediumbusinesses that benefit from outsourcing theiroffice and workplace needs to Regus, allowingthem to focus on their core activities.Over 1,300,000 customers a day benefit fromRegus facilities spread across a global footprintof 1,500 locations in 600 cities and 99 countries,which allow individuals and companies to workwherever, however and whenever they wantto. Regus was founded in Brussels, Belgium in1989, is headquartered in Luxembourg and listedon the London Stock Exchange.For more information please visit:www.regus.com
  • 13. Copyright © 2013. Regus Plc. All rights reserved.Whilst every effort has been taken to verify the accuracy of this information,Regus cannot accept any responsibility or liability for reliance by any person onthis report or any of the information, opinions or conclusions set out in this report.