PAPER (PDF)

While an increasingly connected world helps businesses tap into global supply chains and approach new customers, aspiring entrepreneurs worldwide are often hampered by their own government’s regulations and, in many cases, cultural stigmas. 

Despite the challenges, entrepreneurs are making an impact on countries worldwide, boosting growth and helping to alleviate poverty, according to the three experts leading the discussion on “Entrepreneurship: The Engine of the New World Economy,” held during the University of Miami Global Business Forum Jan. 15 – 16, 2009.

Members of the “new media” generation — who have more in common with their peers in other countries than the elders of its own — have the potential to drive economic growth rates around the world, said Jonathan Ortmans, president of The Public Forum Institute, which has embarked on a five-year project to preach the benefits of entrepreneurship to policymakers.

“They don’t have a stake in the status quo. They have no problem flipping the status quo on its ear. They wonder why, not how and where, and thrive on challenging innovation,” Ortmans said. “We are all better off because of it.”

Countries that encourage entrepreneurship have reaped the rewards, Ortmans said. He cited Rwanda, which after being devastated by genocide made it quicker and easier for businesses to open. The African nation has since seen a 59 percent growth in gross domestic product, he said.

But the panelists noted that many would-be entrepreneurs are stymied by government regulations, or the lack thereof.

The United States has the most welcoming web of regulations for entrepreneurs, said Randy Mitchell, special advisor for entrepreneurship at the U.S. Department of Commerce, which makes the American sector so robust. 
However, when other countries pick and choose which rules to enact, instead of replicating the U.S. model, entrepreneurship suffers, Mitchell said. “A weak link causes the whole system to be weak,” he said.

For example, many countries don’t have bankruptcy laws, exposing entrepreneurs to financial devastation if their business fails. Others believe venture capital is the panacea and put all their financial eggs in attracting it, yet only a very small percentage of entrepreneurs qualify for venture capital funding, Mitchell said.

In the U.S., seed money for new businesses largely comes not from venture capital but from taking out a second home mortgage. No other country in the world uses that system, Mitchell emphasized. In the countries of northern Europe, for example, the well-intentioned social safety net actually discourages entrepreneurship. To start a business in Norway, the owner must remove himself from the social service net. If the business fails, the owner doesn’t get unemployment benefits, Mitchell explained. 

While working in Oslo, Mitchell said he was shocked when he asked an audience to rate, by show of hands, their hierarchy of career development. Ranking first was to be employed, second was to be unemployed. Being an entrepreneur ranked last.

Mitchell and other panelists also said that cultural factors play a large role in rates of entrepreneurship. In many countries, the cultural stigma of failure inhibits innovation.

In Japan, for example, which has a corporate culture, the “last thing a mother wants is [her] child to grow up and be an entrepreneur,” Mitchell said. In Mexico, students are taught how to be good managers, not business owners, and often join established companies or take government posts, said Cate Ambrose, executive director of the Latin American Venture Capital Association.

The United States is one of the rare places where “smart investors” see failures as an asset, Ortmans said. But some cultures are more open to risk than others. Argentina ranks highest on the Latin American Venture Capital Association’s meter for entrepreneurship, according to Ambrose, due in part to its strong educational system and its own recent economic crisis.

“If you’re living in an environment that is fairly volatile and don’t know if a financial crisis is around the corner, you’re much more resourceful and innovative,” Ambrose explained.

The panelists also lent their observations on other trends from around the globe:

• Several Latin American countries, including Brazil, Chile, Colombia, Peru, the Dominican Republic and Mexico, have succeeded in drawing venture capital and private equity over the past decade, Ambrose said. The success is due to either a strong local stock exchange or a public-private partnerships like Mexico’s Fondo de Fondos, which invests in local fund managers. Brazil’s stock exchange, she added, expanded phenomenally in 2007, in part because of strong regulations that helped push 67 initial public offerings. 
• In China, entrepreneurship is growing, said Ortmans, who recently visited the country. Midsize companies can often succeed by flying beneath the government’s radar, he said. A true test will be whether the companies survive the global economic downturn. 
• On the domestic front, one audience member asked how entrepreneurs will fare under the Obama administration. Ortmans said he didn’t foresee any changes to the tax policy that would hurt entrepreneurs. On surveys, though, he added, one of the biggest worries for U.S. entrepreneurs is health care coverage. If the Obama administration “makes progress on health policy, it’s a big step forward for entrepreneurship,” he said.

By Marika Lynch