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Int. J. Entrepreneurship and Small Business, Vol. 1, Nos. 3/4, 2004
GEM New Zealand's different approach Howard H. Frederick School of Management and Entrepreneurship, Unitec New Zealand, Private Bag 92025, Auckland, New Zealand E-mail:
[email protected] Abstract: At 13.9% of the adult population, New Zealand's "Total Early-Stage Entrepreneurial Activity" is highest amongst developed countries. This benchmark uses the Global Entrepreneurship Monitor (GEM) methodology. New Zealand has a high level of opportunity entrepreneurship and a moderate level of necessity entrepreneurship. New Zealand's entrepreneurial firms contribute about half of all new jobs created annually. Informal investment is a more important source of financing to entrepreneurs than venture capital. The proportion of female entrepreneurs has slipped over the past three years. Maori are more entrepreneurial than the rest of population. The study argues that New Zealand has an excellent innovation policy but no entrepreneurship policy. Keywords: New Zealand; entrepreneurship; Global Entrepreneurship Monitor. Reference to this paper should be made as follows: Frederick, H.H. (2004) 'GEM New Zealand's different approach', Int. J. Entrepreneurship and Small Business, Vol. 1, Nos. 3/4, pp.212-222. Biographical notes: Howard H. Frederick is recognised as an authority in the field of global communications, economic development, and new technologies. He is the author of New Zealand's first Knowledge Economy Report (1999) as well as of numerous journal papers and books. One of New Zealand's leading advocates for the knowledge economy path to development, Frederick is New Zealand's only Professor of innovation and entrepreneurship.
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Introduction
Conceived in 1999, GEM's objectives are to gather high quality international research data on entrepreneurial activity and to make it available to as wide an audience as possible. Prior to GEM and even to this day, conventional economic research had focused almost exclusively on the competitiveness and productivity of nations and of large corporations. GEM took a different line and sought to answer such questions as: •
how much entrepreneurial activity is taking place worldwide?
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what are the different types of entrepreneurship?
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why are some countries more entrepreneurial than others?
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what can governments do to promote and facilitate entrepreneurial activity?
This is an innovative approach that requires a long-term commitment. Five years since its inception, neither the vision nor the commitment has dimmed. As a result, GEM is now Copyright © 2004 Inderscience Enterprises Ltd.
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H.H. Frederick "An enterprising individual has a positive, flexible and adaptable disposition towards change, seeing it as normal, and as an opportunity rather than a problem. To see change in this way, an enterprising individual has a security born of self-confidence, and is at ease when dealing with insecurity, risks, difficulty and the unknown. An enterprising individual has the capacity to initiate creative ideas . .. develop them, and see them through into action in a determined manner. An enterprising individual is able, even anxious, to take responsibility and is an effective communicator, negotiator, influencer, planner, and organiser. An enterprising individual is active, confident, and purposeful , not passive, uncertain and dependent ... " (Ball et al., 1989)
We have extended our research into new areas to look at how enterprise can inform economic and social policy more widely. Going beyond the individual level of entrepreneurial behaviour, we are now looking at the rate of enterprise amongst New Zealand's firms in comparison to the rest of the world. We are examining vehicles for social inclusion by analysing levels of entrepreneurship amongst women, youth and seniors. We are looking at regional entrepreneurship that can drive development and regeneration. 2 We are looking at ethnicity and have led the drive in New Zealand to examine and understand the fascinating dynamics of Maori entrepreneurship (Frederick and Henry, 2004). We also are turning our attention to families , economic growth, home-based entrepreneurs, necessity entrepreneurs, even to the communication behaviour and the religion of entrepreneurs. We are especially interested in the high growth potential of entrepreneurs.
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Countries surveyed
The GEM World now encompasses 41 countries, accounting for approximately 90% of the world's GDP and two-thirds of its population. These countries include: Argentina, Australia, Belgium, Brazil, Canada, Chile, China , Croatia, Denmark, Ecuador, Finland, France, Germany, Greece, Hong Kong, Hungary, Iceland, India, Ireland, Israel, Italy, Japan, Korea, Mexico, Netherlands, New Zealand, Norway, Peru, Poland, Portugal, Russia, Singapore, Slovenia, South Africa, Spain, Sweden, Switzerland, Taiwan, Thailand, Turkey, Uganda, the UK, the USA, Uruguay, and Venezuela. Figure 1
Map of the GEM World
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GEM New Zealand's dif.fer;ent approach
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GEM theory and method are focused on small firms and the micro-economy
Three propositions underlie the GEM programme: •
That a certain portion of the adult population can be classified as entrepreneurs. Being able to measure the extent of entrepreneurial activity has profound implications for education, research, and government policy.
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That one country could be rated higher in total entry-level activity than another. The empirical and longitudinal measures of the entrepreneurial advantage of nations are one of this study's key features.
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That some people become entrepreneurs because they spot business opportunities ( 'opportunity entrepreneurs ') whilst others become entrepreneurs out of necessity ( 'necessity entrepreneurs'). Policy makers and service providers must take these differences into account.
At the heart of the GEM global project is an attempt to understand how entrepreneurship is related to economic development. Previous approaches examining economic growth (including GDP and employment growth) have tended to focus on the contribution of larger established firms rather than smaller firms. These conventional models have assumed that the larger firms are the primary engines of prosperity in modern economies (for example Porter et al., 2002). They examine the impact of 'general national framework conditions' on the performance of larger firms. As these firms mature and expand, they create significant demand for goods and services in their host national economies. This increase in demand signifies market opportunities for many micro-, small-, and medium-sized firms . Figure 2 describes the conventional model. Figure 2 Social. Cultural, Political Context
The ro le of larger established firms and economic growth General National Framework Conditions • • • • • • • •
Openness (External Tracie) Government (Extent, Role) Financial Markets (Efficiency) Technology. R&D(Level. Intensity) Infrastructure (Pl1ysirnl) Management (Skills) lallour Markets (Flexillle) Institutions (Unlliasecl. Ruleof law)
Major Established Firms (Primary Economy)
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~
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National Economic Growth • GD P • Jobs
Micro, Small and Medium Firms (Secondary Economy)
Such a model ignores the effect of small-business entrepreneurship on economic growth. The role played by the small-to-medium-sized enterprise sector (SMEs) is relegated to that of a supporting or reactive actor, involved in the supply of goods and services to larger established businesses. Yet the evidence demonstrates that large firm activity can explain only a proportion of the variation in economic growth within a nation. SMEs generally account for 95% of enterprises and 60-70% of employment in most economies. In the USA, new fast-growth companies comprise around 350,000 firms out of a total of six million US businesses with employees. Yet, this small base of companies created two-thirds of new jobs during the 1990s. Moreover, these firms are the leaders in
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generating new products and services. According to one study, small entrepreneurial companies are responsible for more than half of all innovations, 67% of inventions, and 95 % of all radical innovations created since World War II (National Commission on Entrepreneurship, 2002). The same is true elsewhere. Between 1997-1998, 45 % of new jobs in Australia was created by new firms (Australian Bureau of Statistics, 1999). Between 1994 and 1998, start-up and high growth companies generated more than 80% of new jobs in the Netherlands (Balje and Waasdorp, 2001). By international comparison, SMEs account for a high proportion of employment in New Zealand relative to other countries. New Zealand has one of the world's highest levels of business owners in the labour force (exceeding New Zealand in this measure are Greece, Italy, Australia, and Portugal) (OECD, 2001). According to the Ministry of Economic Development, SMEs constitute the majority of all enterprises in New Zealand. 86% of enterprises employ five or less full time equivalents (FTEs); and 96.8 % of enterprises employ 19 or fewer FTEs. The average number of FTEs per enterprise in New Zealand was 5.23 in 2002 (Ministry of Economic Development, 2003b). Using value added as a measure of the contribution of SMEs to total output in New Zealand' s economy, SMEs account for 36% of the economy in 2001. Small firms alone contribute more than half of the SME output. Yet SMEs can have short life-spans. In 2001, small firm deaths accounted for 92.2% of total enterprise turnover in the economy. Of all small businesses started up in 1995, 55% survived the second year, 46% the third, and 27% the seventh year into 2001 (Ministry of Economic Development, 2003b). 3 As we have said, conventional economic models tend to overlook the effect of entrepreneurship. Figure 3 includes a number of factors ignored in conventional models, and shows how entrepreneurship has a direct impact on national economic growth in New Zealand. Figure 3
The entrepreneurial process and economic growth Entrepreneurial Framework Conditions
Social, CUiturai, Political context
• • • • • • • • • •
Financial GoYernment Policies GoYemment Proqiammes Education and Trm rnnq R&D Transfer Commercial lnfrastrncture lntc,nal Ma11
