Most Entrepreneurs Start Businesses Out of Opportunity, Not Necessity

Entrepreneurs / 2nd February 2018

A robust 74 percent of entrepreneurs around the world have started businesses in pursuit of an opportunity rather than out of necessity—this according to the Global Entrepreneurship Monitor (GEM) 2017/18 Global Report released today with sponsors Babson College, Universidad Del Desarrollo, Universiti Tun Abdul Razak, and Korea Entrepreneurship Foundation.

Fifty-four economies participated in the 2017/18 GEM survey, covering 68 percent of the world’s population and 86 percent of the world’s GDP. In its 19^th consecutive year, the report continues to serve as the largest single study of entrepreneurs in the world.

According to the Global Entrepreneurship Monitor (GEM) 2017/18 Global Report: 

Innovation is highest in North America at 40 percent. This is measured by the extent to which entrepreneurs are introducing new products that are unfamiliar to all or some customers and offered by few or no competitors.

Thirty percent of North American entrepreneurs expect to create at least six jobs in the next five years.

In developing economies, more than half of all entrepreneurs operate in wholesale and retail. In contrast, 61 percent of entrepreneurs in North America operate in the technology, finance, and professional services sectors.

“The high levels of innovation, growth-oriented entrepreneurship, and startup activity in technology, finance, and professional service sectors distinguishes entrepreneurship in North America from other regions,” said Donna Kelley, Babson College Professor and member of the Board of Directors of the Global Entrepreneurship Research Association, which overseas GEM. “Entrepreneurs here are key drivers of knowledge and human capital-based business activity. They are improving people’s lives through new and advanced products and services, creating jobs, and demonstrating clear impact not only within their society, but around the world.”

Latin America and the Caribbean, and North America, demonstrate the highest rates of women entrepreneurship (17 percent and 13 percent). These two regions also have the highest rates of youth entrepreneurship (17 percent and 14 percent).

Key Findings

Job Creation Projections

• North America has the highest proportion of entrepreneurs expecting medium to high-job creation (six or more jobs in the next five years).
  • The United States, in particular, stands out with 39 percent of entrepreneurs expecting to generate jobs.
  • North America (30 percent) is followed by Asia and Oceania (21 percent), Europe (19 percent), and Latin America and the Caribbean (18 percent).
  • Africa reports the lowest rate at 17 percent.

Innovation

• The extent to which entrepreneurs are introducing products that are new to some or all customers, and that are offered by few or no competitors, increases with each economic development level:
  • Factor-driven (21 percent)
  • Efficiency-driven (23 percent)
  • Innovation-driven (31 percent)
• Regionally, innovation is highest in North America at 40 percent, and lowest in Latin Americaand the Caribbean at 23 percent.

Societal Values about Entrepreneurship

• Nearly 70 percent of adults globally believe that entrepreneurs are well regarded and enjoy high status within their societies.
  • Notably, 75 percent of adults in Africa believe that entrepreneurs are admired in their societies and 76 percent consider entrepreneurship a good career choice.

Self-Perceptions about Entrepreneurship

• Forty-three percent of the global population see good opportunities around them for starting a business within the next six months.
  • North America has the highest rate of perceived opportunity at 62 percent.
  • Africa has the lowest rate at 37 percent.
• Adults in factor-and-efficiency-driven economies report perceiving higher capabilities for starting a business than those in innovation-driven economies (53 percent versus 43 percent, respectively).
• Adults in innovation-driven economies also report having a higher fear of failure at 40.3 percent (37 percent in factor-driven and 34 percent in efficiency-driven).
• Entrepreneurial intentions range across development levels, the lowest being in innovation-driven economies (15 percent) and the highest seen in factor-driven economies (30 percent).

Phases and Types of Entrepreneurial Activity

• Total early-stage entrepreneurial activity (TEA) is highest in factor-driven economies (16 percent) and lowest in innovation-driven economies (9 percent).
  • Regionally, TEA rates are highest in Latin America and the Caribbean and in Africa. Just under one-fifth of working-age adults are engaged in early-stage entrepreneurial activity.
  • TEA rates are lowest in Europe at eight percent.
• Entrepreneurial employee activity (EEA) is highest in innovation-driven economies (five percent) and lowest in factor-and-efficiency-driven economies (one percent and two percent, respectively).
  • EEA rates are highest in North America (eight percent), Europe (four percent), and Asia and Oceania (three percent).
  • EEA rates are lowest in Africa (one percent) and in Latin America and the Caribbean (two percent).

Gender and Age Distribution of Early-Stage Entrepreneurial Activity

• The highest average female TEA rates are seen in Latin America and the Caribbean (17 percent) and North America (13 percent).
  • In Latin America and the Caribbean, there are 17 women engaged in early-stage entrepreneurship for every 20 men entrepreneurs.
• The lowest rate is in Europe (six percent) where only six women are engaged in entrepreneurship for every 10 men doing the same.
• In just three economies, women report equal or higher entrepreneurship rates than men:
  • Ecuador (31 percent)
  • Vietnam (25 percent)
  • Brazil (21 percent)
• Entrepreneurs aged 25-34 and 35-44 are the most active entrepreneurs globally.

Motivation for Early-Stage Entrepreneurial Activity

• Seventy-four percent of adults chose to pursue an opportunity as a basis for their entrepreneurial motivations.
  • The lowest average opportunity motivation is found in factor-driven economies (68 percent).
  • Regionally, North America presents the highest levels of opportunity motivation at 83 percent, followed by Europe (75 percent), Asia and Oceania (74 percent), Latin America and the Caribbean (72 percent), and Africa (71 percent).
• In 2017, there were more than two times as many improvement-driven opportunity entrepreneurs as necessity-driven ones, on average, in factor-driven economies. This is double the proportion that was reported in 2016 by economies that participated in both surveys.
  • North America tops the motivational index with five improvement-driven opportunity entrepreneurs for every one necessity-driven entrepreneur in the country.
• Business discontinuance rates in the factor-and-efficiency-driven economies are on par with one another at five percent. In the innovation-driven economies, this rate falls to four percent.
  • The No. 1 reason for discontinuance consistently cited in 2017, 2016, and 2015, was lack of business profitability. This is seen most in efficiency-driven economies at 39 percent.

Industry Sector Participation

• Over 50 percent of entrepreneurs work in wholesale/retail in factor-and-efficiency-driven economies.
  • Latin America and the Caribbean reports the highest level of wholesale/retail activity among early-stage entrepreneurs at 56 percent.
• Yet, 50 percent of entrepreneurs in innovation-driven economies are in information and communications, financial, professional, and other services.
  • In North America, just over one-fifth of entrepreneurs operate in the wholesale/retail sector with considerably higher representation in the technology, finance, and professional services sectors at 61 percent.
• Manufacturing entrepreneurship activity is higher in Europe than in North America (eight percent versus six percent).
  • Manufacturing entrepreneurs are most prevalent in Morocco at 17 percent.
• Information and Communication Technology in North America is higher than in Europe (eight percent versus five percent).