12, April 2023

Entrepreneurship around the world.

The world’s largest study of entrepreneurship has just issued its latest report. Here is a summary.

Background
The Global Entrepreneurship Monitor1 (GEM) is an international organization that produces reports on entrepreneurship around the world.  It has been doing this since 1998 and has grown to be the largest study of entrepreneurship in the world. The 2023 report is based on 176,000 surveys in 50 countries carried out in 2022.  The results are regarded as authoritative and are used by international organizations such as the UN, OECD, World Economic Forum, etc. The 2023 report is titled “Adapting to the New Normal”. Canada was an early member of the consortium, and the present GEM Canada team has been in place since 2013.

How is GEM different from other entrepreneurship surveys?
GEM surveys individual entrepreneurs to develop its reports. Most other reports on entrepreneurship look at businesses. You can think of this as a top down versus bottom up approach. Both approaches are complementary. GEM data provides insight into the plans that entrepreneurs have for the future and information on motivation and challenges that cannot be found in business data.  Governments in Canada find this information useful as it provides the evidence for evidence based policy development.

How does GEM handle countries at different stages of development?
It doesn’t make a lot of sense to compare a country like Canada with, say, Egypt that has a much different level of development. So GEM uses three country classifications:

  • Countries with GDP per capita of more than $40,000 USD. [Level A countries]
  • Countries with GDP per capita between $20,000-$40,000 [Level B countries]
  • Countries with GDP per capita of less than $20,000 [Level C countries]

How did Canada do?
One of the key GEM metrics is the TEA, the total entrepreneurial activity. This is the percentage of adults (aged 18-64) who are starting or running an early stage business. Another is Established business ownership (EB) – the percentage of adults who are currently the owner-manager of a business more than 42 months old. The graphic below shows the TEA and EB numbers for all the countries in the 2022/23 study.

As usual, Canada is among the high income countries with the highest TEA rate. For several years Canada has outpaced the US but in 2022 the TEA rate in Canada dipped and the rate in the US rose, overtaking Canada. In 2022 about half of the high income countries showed an increase in entrepreneurship and half showed a decrease from 2021. We don’t understand why this is but it is likely related to the recovery from COVID-19 and local responses.

In Established businesses, Canada was middle of the pack – higher than many European countries but lower than the US.

Contrast between Europe and North America.
There is a marked contrast between entrepreneurship in Europe and North America. Canada and the US have TEA levels at least twice those of most European countries. Exits are also very different.   Exits can mean two things – the business closes down, or it continues under new management. Canada and the US have exit rates two to three times higher than most European countries, in both categories. This indicates that there is much more churn in North America – more startups and more failures.  In general there is a correlation between high startup rates and high exit rates in all GEM countries.

The pandemic uncovered new opportunities.
Adversity can present opportunities, as well as threats.  Many entrepreneurs around the world saw opportunities arising from the pandemic. The graphic below shows the percentage of those starting a new business (and running an established business) who agree that the pandemic led to more opportunities.

Canada ranks highly on this scale, particularly for start ups. There is quite a range in Level A, B and C countries, which likely reflects local conditions.

What motivates entrepreneurs?
GEM uses a number of different metrics to measure entrepreneurs’ motivation. One metric is “to continue a family tradition”. On this count Canada ranks very highly among Level A countries, second only to Saudi Arabia.  Another metric is “ To earn a living because jobs are scarce”. Here Canada ranks in the middle of the pack among Level A countries, with 58.5% of entrepreneurs responding “yes” to this. The US had one of the highest ratings by this measure. Results for this metric are much higher in Level B and C countries, many recording 80-90% answers to this question.

Two other metrics GEM uses are “To make a difference in the word” and “ To build great wealth or very high income”. The graphic below shows the response for GEM countries.  Canadian responses are almost equal for these two question.

Conclusion

Canada performed strongly in this GEM survey.  The results reported here are just the tip of the iceberg. The full report is available at www.gemconsortium.org

Peter Josty
www.thecis.ca

  1. gemconsortium.org