China: Start-Up Capital of The World

Results of the largest global study of entrepreneurship ever conducted indicate a vast difference in the entrepreneurial activity of the world’s two largest emerging economies.

Launched by international accountancy and advisory group Mazars, in collaboration with the Global Entrepreneurship Monitor (GEM), the report examines the phenomenon of high-expectation entrepreneurship (HEE): start-up firms expecting to employ at least 20 people in five years time.

This form of entrepreneurship is important because of its significant contribution to economic prosperity and job creation. For emerging economies it is particularly important because it helps to build and sustain countries’ industry, strengthening long-term economic stability.

The study analyses entrepreneurial ambition from two perspectives: as a proportion of a country’s overall adult population and of its start-up community. On both counts China shows far greater entrepreneurial ambition than India.

China vs. India: A Tale of Two Countries

Of the low-income countries, China is vastly ahead in terms of entrepreneurial expectation. Seventeen in 1,000 adults in China are high-expectation entrepreneurs, compared to just 7 in 1,000 in Brazil and just 2 in 1,000 in India. India has amongst the lowest levels of entrepreneurial expectation in the world, 88% lower than in China.

Erkko Autio, Professor of Entrepreneurship (Imperial College London) and author of the report comments: “Broadly speaking, our research reveals that the lower the GDP per capita the higher the amount of necessity-driven entrepreneurship, and the lower the amount of high-expectation entrepreneurship. However, China is a marked exception to this trend.”

David Cho, Partner at Mazars Hong Kong comments: “Analysts typically group China and India as fellow emerging economies. However, there are major structural differences between the two countries, not least when it comes to their entrepreneurial base.

“Whilst China’s low technology manufacturing base is booming, India’s growth has been based on medium to high technology products and services, which present greater barriers to entry for entrepreneurs.

“China’s export-driven economy also pushes its entrepreneurs to grow quickly in order to achieve the economies of scale needed to remain competitive.”

Alistair Fraser, Global Head of Owner-Managed Business Services at Mazars, comments: “The Indian Government is starting to develop policies which support their entrepreneurial community. However, restrictive labour laws, volatile costs and high interest rates are still preventing Indian start-ups from growing to their full potential.” 

China: The Dragon Reigns

Even more impressive is China’s ranking amongst all the countries studied by GEM. China has more high-expectation entrepreneurship (of the overall adult population) than any other country, ahead of leading high-income countries, the US (15 in 1,000), New Zealand (14), Iceland (13) and Canada (12). Not bad for an economy rated 86th of 179 by GDP per capita. The UK ranks 12th with 7 in 1,000 high- expectation entrepreneurs.

Alistair Fraser said: “While the US is traditionally seen as the promised land for ambitious entrepreneurs, today’s entrepreneurial gold rush is in China. With such a growing powerhouse of entrepreneurs it is China that the US needs to watch out for as a competitor on the global stage, particularly as China’s entrepreneurs start to scale the value chain.”

BRIC Power

Analysis of the BRIC countries reveals that of the four countries predicted to gain global economic power in coming years, it is China and Russia that hold the advantage over India and Brazil with far more entrepreneurs planning for high-growth.

Globally, China has the most high-expectation entrepreneurs, but when examining growth aspirations amongst these countries’ start-up communities, Russia ranks top, with 175 in 1,000 rated high-expectation. China ranks sixth (124 in 1,000), Brazil 28th (47) and India 30th (19).

Erkko Autio comments: “It is not such a surprise that Russia rates so highly amongst the BRIC countries as it is a wealthier country in comparison. China’s results however, do stand out as significant. For a low-income country China fosters a remarkably high amount of ambitious entrepreneurship.”

China: China’s Great Expectations

China may have more entrepreneurs with high-growth expectations than the high-income countries, but its prevalence of established (42 months old, employing 20 or more) entrepreneurs is significantly behind these countries. China ranks first for HEE in the adult population, but 25th for its prevalence of established entrepreneurial businesses.

China does however, still stand out amongst low-income countries for its prevalence of established entrepreneurs. Forty-seven in 1,000 of China’s entrepreneurial businesses can be categorised as established, in comparison to just 18 in 1,000 in Brazil and a mere 7 in 1,000 in India.

David Cho said: “The ambitions of Chinese entrepreneurs may not yet be reflected in the number and size of established business start-ups, but this is easily attributed to the country’s new found economic direction.

“When these ambitious entrepreneurs have had the chance to grow in this new business environment the world is likely to feel the full impact of this thriving economy.”

Alistair Fraser comments: “China’s highly ambitious entrepreneurs will continue to strengthen China’s global economic power. In order to compete, Governments around the world will have to take action to support high growth entrepreneurship.

“A simplification of regulations and investment in entrepreneurship training at higher education institutions will be needed if governments are to facilitate the high-growth ambition they need to strengthen the economic stability of their emerging economies.”

About the Study

The Global Entrepreneurship Monitor’s (GEM) 2007 Global Report on High-Growth Entrepreneurship was written by Erkko Autio  (Imperial College London) and produced in association with Mazars, London Business School and Babson College, Massachusetts (USA).

The report examines the growth expectations of nascent, new and established entrepreneurs in 53 countries. The study is based on interviews with 678,714 adult-aged individuals and is the first study to make international comparisons of the nascent entrepreneurial process.

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© 2008 Mazars LLP, the UK firm of Mazars, an international advisory and accountancy group.