role of entrepreneurship in economicdevelopment

EXCEL International Journal of Multidisciplinary Management Studies

Vol.2 Issue 4, April 2012, ISSN 2249 8834

Online available at http://zenithresearch.org.in/

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ROLE OF ENTREPRENEURSHIP IN NATIONAL ECONOMIC GROWTH

A COMPARATIVE ANALYSIS OF INDIA & CHINA

PROF. AMIT GUPTA*

*Doctoral Student,

National School of Leadership,

Pune, India.

ABSTRACT

Both India and China have made rapid strides in economic development in terms of GDP and per

capita income ever since their respective liberalization era in 1978 (China) and 1991 (India), this

impressive growth in manufacturing (China) and services (India) is inextricably linked to the

level and type of entrepreneurial activity as seen from the reports of GEM (Global

Entrepreneurship monitor). Countries with similar per capita GDP tend to exhibit similar levels

of entrepreneurial activity, while significant differences exist across countries with different per

capita GDP levels.

While political systems and history of independence and social revolutions have left an

everlasting mark on development of entrepreneurship in both India and China, the ability of

institutions in the political, financial, educational and social framework to learn and unlearn from

the lessons of free market developed economies is of great significance in the constantly

changing business landscape fuelled by global imbalances, trade liberalization, financial markets

integration and of course the information explosion unleashed by the internet and wireless

connectivity.

It is significant that China has evolved from the clutches of centralized government economy to

relative market economy culminating in their joining the WTO in 2001. India with its pluralistic

democracy has always had a history of entrepreneurship limited to certain communities like the

Marwaris and Parsis who more recently have been upstaged post 1991 liberalization by

entrepreneurs of all hues who have capitalized on the opportunities thrown open by

globalization, like the first generation Bhartis, Ambanis, Ranbaxy, not to forget more modern

professional entrepreneurs like N.R.Narayana Murthy, Azeem Premji et al who have taken

advantage of the knowledge economy and labour arbitrage opportunities thrown up by

demographic discrepancies and made India a force to reckon with in the software services

outsourcing space. The issue now is can they really scale it up and move up the value chain by

breaking the nexus between revenue/profitability growth and manpower growth to address

challenges of talent shortage and employability of significantly large numbers in relatively short

span of time.

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INTRODUCITON

OBJECTIVES OF THE STUDY

1. This study primarily tries to analyze the basic contribution of entrepreneurship to national

economic growth and development, with particular reference to the two emerging powers India

and China who have followed somewhat different paths towards similar objectives of reconciling

growth with sustainability and equity.

2. Other issues examined are the impact of cultural and demographic factors on the

entrepreneurial spirit and the business/government policies and intellectual environment

facilitating or creating barriers to unleashing the full potential of private individuals and

institutions in both countries.

METHODOLOGY OF THE STUDY

This research has been based entirely on secondary data sources, which were subject related. The

sources used were books, journals, newspapers, reports and websites.

LIMITATIONS OF THE STUDY

Like any other research paper, time was a constraint. More literature review could have been

done with a broader time span. Also more recent data, in certain areas would have helped to

analyze better.

SCOPE FOR FURTHER RESEARCH

Entrepreneurship and its effect on growth as well as the environment, socio-cultural factors and

the effects on social entrepreneurship can be studied in detail across a diverse country like India

as also the various provinces of China.

Further research is also possible in finding the changes in levels of entrepreneurial activity which

can impact the per capita GDP. Another off-shoot would be researching on the time lag for

improving the entrepreneurial activity and whether this has any impact/correlation to increasing

per capita GDP.

INDIA & CHINA COMPARED

It is a matter of continuous debate that China has basically grown based on accumulation of

resources whereas India has shown significantly better returns on capital and efficiency in

managing its resources. While this may be true, what is of significance is that post independence

of India (1947) and China (1949), both started as economically backward, centrally planned

agrarian economy and then went on to open up significantly in 1978 ( China) and 1991 ( India).

Both had issues of corruption and bureaucratic red tapism which continue to hamper general

business and trade. While China has basically been FDI led with little local entrepreneurial

activity (at least till 2001-02), the Chinese save and invest more in their economy (almost twice

that of India). The share of gross domestic investment in GDP is 41 % in China compared to




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22.8% in India. The Chinese are more open to international trade and export share of GDP is

twice that of India. (See Table 1 for details).

TABLE 1: SHARE OF GDI IN GDP

China 1982 1992 2001 2002

GDP (US$ billions) 221.5 454.6 1,167.1 1,232.7

Gross domestic investment/GDP (%) 33.2 36.2 38.5 41.0

Exports of goods & services/GDP (%) 8.9 19.5 25.5 29.5

Gross domestic savings/GDP (%) 34.8 37.7 40.9 44.0

India

GDP (US$ billions) 194.8 244.2 478.5 510.2

Gross domestic investment/GDP (%) 21.7 23.8 22.3 22.8

Exports of goods & services/GDP (%) 6.1 9.0 13.5 15.2

Gross domestic savings/GDP (%) 18.3 21.8 23.5 24.2

Source : Paper titled ―China’s Political economy‖, Lynette Ong, Australian national University

A more compelling reason to account for India's slower growth is the flows of foreign direct

investment (FDI). As shown in the diagram below, the amount of FDI into India is only a small

fraction of that into China. Of course, any statistics, especially those reported by communist

cadres who are rewarded for economic performance of their localities, should be taken with a

grain of salt. As frequently pointed out, China's FDI figures are likely to be exaggerated by

"round-tripping" - domestic capital disguised as foreign investment (passed through Hong Kong)

to qualify for special investment incentives reserved for foreigners. India's FDI figures, however,

may be understated because they exclude foreigners' reinvested profits, the proceeds of foreign

stock market listings, intra-company loans, and so forth. This may not be a simple issue of

whether India is able to attract foreign investment but more connected with Government policy

in a multi party democracy with its pressures of push and pull from different constituencies as we

have seen in the recent SEZ development, a policy which has been so successfully implemented

by China quite some time back on a far larger scale and size to become ― factories to the world‖.




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Source : Paper titled ―China’s Political economy‖, Lynette Ong, Australian national University

India’s growth has been far more organic and home grown ( hence sustainable?) than the FDI led

Chinese growth story ( substitute for domestic entrepreneurship), further backed by the width,

depth and increasing sophistication of India’s financial markets, functioning judiciary ( never

mind the pile up of cases!), protection of property, intellectual property rights, English led

education system, institutions of excellence like IIT’s, IIM’s, IISc,etc who given the right

support and ecosystem can churn out the best of talent as can be seen from the history of Silicon

Valley where Indians are a mainstay in technology led innovations and contributed a great deal

to India software revolution.

Last but not the least, the attitude towards failure has changed significantly across the globe,

more so in closed societies like India and China where the ―fear of failure‖ and lowering of

social status was a major hindrance and barrier to entrepreneurship. Stories abound about fathers

not giving the hand of their daughters to prospective grooms who are businessmen and hence not

very reliable or socially mobile. Much of this has changed in the last decade or so, primarily on

account of more global exposure and integration, and more importantly due to

institutionalization of the entrepreneurial process in form of venture capitalists, angel investors,

business incubators to make the survival process more sustainable and add credibility to the

wealth and job creation activity in developing countries, to pull them out of the poverty trap and

march towards a economic powerhouse status as predicted by Goldman Sachs BRIC report.

The picture would be incomplete without touching the latest developments in social

entrepreneurship, made popular by the progenitor of microfinance, Mr Mohammed Yunus of

Grameen Bank, Bangladesh starting from the first few dollars given to Sufia Begum in 1974.

The debatable issue is of course whether this is leading to creation of productive enterprises or

only distribution of largesse on behalf of the super rich of the globe.




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WHAT IS ENTREPRENEURSHIP?

Entrepreneurship is the practice of starting new organization, particularly new businesses

generally in response to identified opportunities. Entrepreneurship is often a difficult

undertaking, as a majority of new businesses fail. Entrepreneurial activities are substantially

different depending on the type of organization that is being started. Entrepreneurship ranges in

scale from solo projects (even involving the entrepreneur only part-time) to major undertakings

creating many job opportunities. Many "high-profile"entrepreneurial ventures seek venture

capital or angel funding in order to raise capital to build the business. Many kinds of

organizations now exist to support would-be entrepreneurs, including specialized government

agencies, business incubators, science parks, and some NGOs.

LITERATURE SURVEY

David McClelland (1961) described the entrepreneur as primarily motivated by an overwhelming

need for achievement and strong urge to build.

Collins and Moore (1970) studied 150 entrepreneurs and concluded that they are tough,

pragmatic people driven by needs of independence and achievement. they seldom are willing to

submit to authority.

Bird (1992) sees entrepreneurs as mercurial, that is, prone to insights, brainstorms, deceptions,

ingeniousness and resourcefulness. they are cunning, opportunistic, creative, and unsentimental.

Busenitz and Barney (1997) claim entrepreneurs are prone to overconfidence and over

generalisations.

Cole (1959) found there are four types of entrepreneur: the innovator, the calculating inventor,

the over-optimistic promoter, and the organisation builder. These types are not related to the

personality but to the type of opportunity the entrepreneur faces.

Burton W. Folsom distinguishes between what he calls a political entrepreneur and a market

entrepreneur. The political entrepreneur uses political influences to gain income through

subsidies, protectionism, government-granted monopoly, government contracts, or other such

favorable arrangements with government(s) (crony capitalism and corporate welfare). The

market entrepreneur operates without special favors from government.

CHARACTERISTICS OF ENTREPRENEURSHIP

The entrepreneur has an enthusiastic vision, the driving force of an enterprise.

The entrepreneur's vision is usually supported by an interlocked collection of specific

ideas not available to the marketplace.

The overall blueprint to realize the vision is clear; however details may be incomplete,

flexible, and evolving.




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The entrepreneur promotes the vision with enthusiastic passion.

With persistence and determination, the entrepreneur develops strategies to change the

vision into reality.

The entrepreneur takes the initial responsibility to cause a vision to become a success.

Entrepreneurs take prudent risks. They assess costs, market/customer needs and persuade

others to join and help.

An entrepreneur is usually a positive thinker and a decision maker.

Types of entrepreneurship:

Basically two types of entrepreneurship are defined as follows:

A. OPPORTUNITY ENTREPRENEURSHIP: Those motivated by identified business

opportunities in an evolving economic landscape and exploit the perceived opportunity.

B. NECESSITY ENTREPRENEURSHIP: They are pushed into this because all other

options of work are absent or unsatisfactory. Table 2 (Refer to Annexure) from GEM

2006 report show global trends which are quite self explanatory.

MORE LITERATURE REVIEW

A World Bank report on ―Doing Business‖ (2005-06) states that:

Entrepreneurs in South Asia face large regulatory obstacles to doing business.

A standard company in India pays 81% of commercial profits in taxes

In India only 8 million workers have formal jobs in the private sector in a country of over

1 billion people and a workforce of 458 million.

In another study of World Bank on ―Entrepreneurship‖, Klapper (2006) two indicators have been

analyzed. One is Business density which is defined as the number of registered firms as a % of

the active population within the age group of 15-64 years. Another is the Entry rate which has

been defined as the number of new firms registered in a particular year as a percentage of the

total registered firms.

The entry rate can be considered as one of the key indicators of entrepreneurship. In the survey

conducted during the period 1990-2003 across 95 countries across the globe, entry rate was

found to be less than 5% in India as compared to 20% in Germany, New Zealand and U.K.

However, the average entry rate is 7-8% across developing countries.




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Business density was found to vary across country income groups and range from less than 1%

in low-income countries to 10% in high income countries.

Barriers to starting a business are negatively correlated with business density and entry rate. The

lesser the procedures required to start a business, greater the number of registered firms and

higher the entry rate. (Refer to Table 16 of Annexure for further details)

There is also a relationship with total firm registrations being higher in countries with a small

informal sector.

In connection to the last finding we have concluded that SMEs are being increasingly recognized

as an essential driving force for economic growth in developing countries. These SMEs are

flexible to respond quickly to market changes and opportunities to develop specialized product

niches and absorb rapid technological innovations provided they get the right guidance, training,

are made aware with right policy environment and greater access to financial services. So SMEs

in turn can create substantial capital and jobs at a local level thereby raining the local standards

of living.

Women have been playing an increasing role in this sector especially in developing countries.

One of the reasons being the socio-cultural environment as in India, where women (especially in

the rural areas) tend to take charge of the income-generation modes and turn out to be better

planners and decision makers than the men folk. In India, we should not forget to mention

Dhirubhai Ambani filling tanks at a petrol station in Aden, going from loan officer to loan

officer, himself carrying bolts of textile, for loans of a few lakhs, eventually constructs a giant,

the Reliance we see today. Mammen Mappillai who, together with his wife, begins by selling

balloons, and then creates MRF. Seven housewives begin Lijjat Papad with 80 borrowed Rupees

— today 40,000 women out of their homes have taken its turnover to Rs 300 crores. The

dabbawallahs of Mumbai reach two lakh tiffin carriers from homes to offices and back using just

public transport and pavements; the convenience that the roadside thelawallah brings to the

customer — they are also entrepreneurs all the way. After all, they have become case studies in

foreign B-schools.

China has been successful in lifting millions of people out of poverty in less than 3 decades as a

result of governmental reforms and private sector development. DFID (U.K.) has been working

in China since 1999 for reducing poverty. One of its projects ―Start & Improve your business‖

project started in 2004 aimed at providing entrepreneurial training to the Chinese. The ―Private

Enterprise Partnership for China‖ project was launched in 2001. This aimed at reducing the

problems faced by SMEs like limited access to financial services, underdeveloped policies, lack

of knowledge and risk management techniques. The ―SME Support System‖ project started in

2005 is promoting private sector development through China’s law on promoting SME and

closing the gaps in this policy. This is an institutionalized form of the TVE (Town & Village

Enterprises) revolution that contributed to the growth of China in 1980s and 1990s that have

outrun both state-owned and foreign invested companies.




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Source: Unleashing Entrepreneurship: Making Business work for the Poor

http://www.undp.org.mk

OVERVIEW AND IMPACT OF ENTREPRENEURIAL ACTIVITIES ON NATIONAL

ECONOMIC GROWTH

A study of the conceptual model as developed by Global Entrepreneurship Monitor clearly

brings into focus the systematic relationship between per capita GDP levels, entrepreneurial

activity levels ( TEA-Total entrepreneurial activity) by various kinds of businesses like early

stage entrepreneurs and established business owners as also differences and similarities between

high income and middle income countries along with framework conditions necessary to

facilitate and support entrepreneurship among various kinds of enterprises as shown below.




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A detailed framework of the Total Process (Table 3), elaboration of General National Framework

conditions (Table 4) and elaboration of Entrepreneurial framework conditions (Table 5) may be

referred to from the Annexure.

Comparing the two economic powers India and China based on the above general framework

conditions, the competitiveness of China lies in greater openness to external trade and excellent

infrastructure. The stranglehold of the centralized command in form of Communist party is of

course a double edged sword resulting in short term implementation with single minded

determination, possibly a the cost of long term strategies which is a subject of much larger

debate.

The Indian economy scores on the depth, sophistication, liquidity of financial institutions, higher

levels of technology/ R&D absorption especially in IT, software services, pharmaceuticals and

biotechnology led by excellent higher educational institutions like IIT’s / IISc, etc, global

management skills and a good regulatory and legal system with fair rule of law (by and large at

least compared to China) especially on the fronts of intellectual property and property rights.

Physical infrastructure is a sore point with all kinds of entrepreneurs and so is the levels of

reliability with social infrastructure and utilities like power, water which lead to excessive usage

of capital for similar scale of operations compared to western counterparts thus eroding

competitiveness on global stage. However this showing dramatic improvements in most urban

areas and needs to be in sync with economic growth rates projected over the 11 th five year plan

and beyond.

Compared to developed western world of course, both the Asian giants have a long way to go

with respect to labour policies flexibility, growth of financial institutions so as to allocate capital

more efficiently ( instead of distorted subsidies and vested interests), foreign exchange controls

and convertibility regime, marketing and accounting services of global quality, consumer

sophistication, widespread communication facilities and overall institutionalization of all

facilitating government support factors besides breaking down the corruption and bureaucratic

bottlenecks existing across the spectrum of formal and informal institutions.

One other aspect of the analysis of economic sectoral activities clearly shows the following

trends:

GEM CONCEPTUAL MODEL

Entrepreneurial

framework

conditions in

the country

Level of

entrepreneurial

activity in the

country

National

economic

growth of

the country




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In both ―early stage‖ and ―established business ownership‖ the ―business services‖ sector

is predominant in high income countries.

The middle income countries lead in ―consumer oriented‖ industries in both types of

entrepreneurial activity, mainly due to demographic reasons and growing market

opportunities based on rising disposal incomes and low base of consumption in value

added products and services.

As far as ―transformation‖ (construction/manufacturing/transportation/distribution) and

―extractive‖ (extraction of products from natural environment) sectors are concerned both

groups of countries are somewhat similar in trends.

(Please refer to Table 6 of Annexure)

CULTURAL/ DEMOGRAPHIC FACTORS IMPACTING ENTREPRENEURIAL

ACTIVITIES

The entrepreneurial demographics of age, gender, work status, education, income and

perceptions are all significant socio-economic factors in a person’s decision to start a business.

Both India and China have been subjected to social behaviour systems that condemn profit

seeking and advocates group orientation, conformity and respect for authority.

However the East Asian economic miracles driven largely by diasporas of overseas Chinese

entrepreneurs focused on values of persistence, diligence, thrift and family as strong supporting

factors for entrepreneurial development.

Some important entrepreneurial values like creativity, innovation and flexibility were lacking in

Chinese value systems and thus cultural barriers to entrepreneurship. There has been a

historically low social status of entrepreneurs in China, influenced also by political ideology and

degree of openness to foreign values. This value system incidentally is very similar to Indian

value systems and leads to the most important characteristic barrier which is the ―fear of failure”

and not being resilient enough to take on challenges and changing with the dynamic business

environment.

In China, quitting one’s job at an SOE means sacrificing not only a stable income, but also

significant fringe benefits such as housing and hence one needs to be more risk-loving than

counterparts elsewhere to overcome environmental barriers. Situation is very similar in India

with respect to the public sector vis-à-vis private sector which has of late broken down to a large

extent due to MNC influence and less stranglehold of political ideology as compared to Chinese

regulated economy and also due to other business environment factors that we will discuss in the

next section.

Some unique characteristics to entrepreneurs in China are political nimbleness and interpersonal

harmony. Historically, China has been unpredictable. For example, Deng opened the doors to

economic freedom, but also ruthlessness cracked down on demonstrators in Tiananmen Square.




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Liquidity is a valued intangible asset of Chinese entrepreneurs and back-up plans, dual

citizenship, low capital-requirement start ups allow for desired liquidity for overseas Chinese

entrepreneurs in countries like Indonesia, Malaysia and Singapore.

Hard work and liquidity are factors Chinese entrepreneurs use to hedge for unpredictable

environment. Additionally, interpersonal harmony and guanxi are important factors for reducing

risk. Roughly translated ― guanxi‖ means connections and affiliations and implicit in this is

corruption, bribery and ― under the table‖ activities for licenses and Government approvals, very

similar to the license-permit Raj prevailing in India till a few years back and to some extent even

today in regulated sectors.

The management structure of entrepreneurships in India and China were largely family

controlled till the knowledge economy dawned and professionalized the environment with free

access to capital based on merit and innovation.

With accelerating reform and increased exposure to the West, values in these countries are also

changing. Perceptions of entrepreneurs are improving, and people are rushing to ―xiahai‖ (This

phrase literally means go into the sea. Figuratively it means get rich by working in the private or

foreign sectors).

ATTITUDES TOWARD FAILURE/SUCCESS

As everyone knows, many individuals in China have been successful in developing businesses

because the government cannot offer enough job opportunities. Their primary goal is to earn

money and sustain their basic living conditions. But from the middle of the 1990s, with the rising

standard of living, increasing numbers of people set up new ventures not only to sustain their

lives or to make more money but also for self-development. According to a survey of 201 private

entrepreneurs in Hunan province, conducted by the Hunan Association of Business and

Commerce and the Department of Hunan Unification, 41.79 percent of entrepreneurs there set up

an enterprise to improve their living conditions, 16.91 percent to sustain their basic living

standards, 18.41 percent to realize their self-value, 15.9 percent to contribute to society, 4.48

percent to apply their specialties and 2.49 percent for other purposes.

With more people engaged

in business for purposes besides earning money, the criteria for judging whether an entrepreneur

is successful or not depends not only on the money he/she has made, although money is the most

important item. Employees hired by private enterprises are seeking not only a higher income but

also to realize their self-value and have a free and fair working atmosphere, which is more

common in high-tech private firms. But private enterprises cannot offer the same social security

benefits as state-owned enterprises, including medical care, retirement pensions and even

unemployment benefits (for the government denied the phenomenon of unemployment for a long

time). Employees in private enterprises have higher mobility and a greater awareness of risk than

employees in the state-owned units (including in the collective-owned units). Layoffs,

resignations and a different kind of relationship between employers and employees are widely

accepted. If dismissed, the employee is able to accept this result quietly and willing to try and

find other opportunities by him/herself. On the other hand, the entrepreneur also realizes that his

firm, if poorly managed or if the product is rejected by the marketplace will become bankrupt,

and he is also able to accept the fact and to try to find another new way to salvage his business.




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Regarding the attitudes of the people toward entrepreneurial failure, Chinese believe that it is

natural and unavoidable since there are a great many storms in the ―market ocean‖ and it is

impossible to avoid drinking ocean water occasionally. So even when someone is a failure in the

market ocean, while he/she does ―go up the seaboard,‖ people look up to him/her, like to talk

with him/her and hope that he/she will be able to re-launch the enterprise in the near future.

Similar attitudinal shifts have taken place in India since the mid nineties with more educated

professionals willing to take calculated risks and backed by better access to capital from venture

capitalists and private equity , besides improved institutional support from Government and

others like Wadhwani Foundation’s NEN ( National Entrepreneurship Network), NSRCEL (

N.S.Raghavan Centre for Entrepreneurial learning), Entrepreneurship centres at IIT’s/IISc/IIM’s

and various other Government schemes mainly targeting small and micro enterprises to boost

employment and take the load off public and Government sectors who have an increasingly

lesser role to play in a market economy, other than improving the ecosystem and facilitating

entrepreneurship.

The proliferation of domestic and foreign media and returning of non resident Indians from

Silicon Valley to establish their own ventures as well as fund start ups have highlighted

entrepreneurship and given a much needed respectability which hitherto was not there among

middle class educated India, since profit seeking was considered to be anathema and only meant

for the uneducated or political class with no other options. Thus there has been a gradual shift

from necessity entrepreneurship to opportunity entrepreneurship and far less fear of failure since

de-risking is a strategic imperative which is taken care of by more educated and aware

entrepreneurial classes.

Adequacy of social and cultural norms for entrepreneurship in India is below the global average

as an integrated measure of various parameters. (Refer to Table 7 of Annexure)

BUSINESS ENVIRONMENT FOR ENTREPRENEURIAL ACTIVITIES

CHINA

After the Cultural Revolution, with China’s economy in ruins and facing a crisis of legitimacy,

Deng launched the ―Four Modernizations‖ reform in 1978 to stimulate economic growth. The

first step was de-collectivisation of agriculture creating the ―township and village enterprises‖

(TVEs). By 1990 TVEs accounted for 20% of China’s gross output. These enterprises were not

state owned unlike SOE but collectively owned under local governments. Managers of TVEs

demonstrated many entrepreneurial characteristics, choosing the product line, funding, labour,

raw materials and distribution channels and reacted to prices and costs in pursuit of profits. Thus

TVEs can be seen as the beginnings of modern Chinese entrepreneurship.

By late 1980’s there was a change of policy and surge towards the private sector. The central

government’s recognition of waste and inefficiency generated by SOEs motivated individuals to

move into entrepreneurship and SOEs have been forcefully shrunk in late 90’s. The state run

sector was contracting at least 3 million workers a year while fifty million join the work force

per year. SOEs are also encouraging employees to pursue advanced degrees. While this is

socially uplifting, a problem exists with employing these students after they graduate, hence it




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was obvious that the Chinese system of ― iron rice bowl‖ ( lifetime employment with housing

etc) was no longer a reliable method of survival and growth.

Private entrepreneurship started with very small scale activities in retail and services, businesses

known as getihu, referred to as self-employed with low social status that were excluded from the

state system.

The next wave was from the MNC/FDI dominated growth drivers and the foreign educated

Chinese returning to China, especially in Internet sector, backed by venture capitalists from

USA.

All these entrepreneurial activities are subject to unpublished regulations ( neibu) and the

caprices of courts who often have retired military persons as judges. Access to resources like

funding, labour, technology has to be overcome since bank loans remain rare. Though venture

capital is in early growth phase, entrepreneurs in China are not accustomed to idea of writing

business plans and approaching VC’s, especially since it might mean giving up equity control.

INDIA

The ecosystem in India has undergone a radical change since the days of Nehruvian socialism

and theory of public sector occupying ―commanding heights of the economy‖. Much water has

flowed since the 1991 liberalization on issues of privatization, foreign investments both in terms

of equity and portfolio investments and venture capital seeking good business plans to fund after

their successes in Europe, USA and Israel and partly in China. Of course this has been limited to

sectors like clean technologies and communication start ups in Web 2.0 space, as is the trend

globally. VC’s seem to be more concerned with the health of the planet and how better to

communicate for business and personal reasons, nanotechnology and medical devices as the next

frontier for returns on investment.

However some of the basic factors of financial support to new firms (state funding), government

programs and policies, education systems and infrastructure, R&D/technology transfer, taxation

and accounting/professional services have played a stellar role in facilitating and encouraging

entrepreneurship at all levels of society across regional disparities and without discrimination on

grounds of gender, caste, sex, etc. Refer to Table 8, 9,10,11,12,13,14,15, & 16 of Annexure

which give a good indication of the status of these parameters with respect to global averages

and show the way forward.

RESEARCH FINDINGS & CONCLUSIONS

While the study has limitations in terms of more concrete quantitative and qualitative data

regarding the Chinese entrepreneurial dynamics and more recent advances taking place in the

Indian economy could be incorporated in a more exhaustive paper, what is clearly evident is

summarized below:

a. Both the economies are growing at an increasing speed with an immense contribution

from the entrepreneurial class who are being supported and facilitated with dynamic

improvements taking place in the ecosystem for entrepreneurial activity.




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b. There is a conclusive and systematic relationship between per capita GDP and

entrepreneurial activity as measured by TEA (total entrepreneurial activity) as per Global

Entrepreneurship Monitor reports which compare the differences in entrepreneurial

activity between different sets of countries and their correlation with GDP levels.

c. What needs to be further analyzed is what changes in levels of entrepreneurial activity

can impact the per capita GDP and also what would be the time lag between improving

the entrepreneurial activity and resulting increase in per capita GDP. This kind of detailed

analysis would give more accurate quantitative tools for policy makers to support and

facilitate entrepreneurship and allocate financial resources with more certainty of cause

and effect relationship.

d. Social and cultural value systems undoubtedly play a critical role in catalyzing

entrepreneurship activities and more university/ institutions of excellence should initiate

entrepreneurship cells, business incubators and entrepreneur-in-residence programs to

drive growth and employment through faster technology transfer and robust R&D

activities.

e. The Government and financial / legal systems have a major role in deepening the access

to capital, providing subsidies to emerging clean technologies which are globally

imperative to improve the health of the citizens and communication/networking across

borders and ensuring the rule of law to reconcile the twin objectives of growth with

equity along-with sustainability as the cornerstone of development in the global market

economy.

REFERENCES

Stanford Journal of East Asian Affairs, Spring 2001,Vol 1., The Development of Modern

Entrepreneurship in China by Debbie Liao and Philip Sohmen

Knowledge @ Wharton; http://www. knowledge.wharton.upenn.edu

http://www.edcorner.stanford.edu

http://www.bhide.net/publications

http://www.martinhaemmig.com

Development of Private Entrepreneurship in China-Process, Problems and Countermeasures by

Yinqiu Liu, Senior Research Fellow and Professor of Economics at the Chinese Academy of

Social Sciences.

http://www.worldbank.org

Global Entrepreneurship Monitor Report: India Report 2001 and Global Report 2006, Babson

College US and London Business School; http://www.gemconsortium.org

The Indus Entrepreneurs ( TiE); http://www.tie.org

http://www.edcorner.stanford.edu/

http://www.bhide.net/publications

http://www.martinhaemmig.com/

http://www.worldbank.org/

http://www.gemconsortium.org/




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Asia Society,New York; http://www.asiasociety.com

http://www.ifc.org; International Finance Corporation

VentureOne ; http://www.ventureone.com

PWC; http://www.pwcglobal.com

http://www.indiavca.com; Indian Venture Capital Association

TSJ Media

KPMG Reports, http://www.kpmg.com

Yaleglobal Oneline Magazine, http://www.yaleglobal.yale.edu

http://www.mckinsey.com; Mckinsey Global Institute

Nishith Desai Associates; http://www.nishithdesai.com

Mira Kamdar: Praise for Planet India: How the Fastest-Growing Democracy is

Transforming America and the World AT Kearney; http://www.atkearney.com

― Everyday Entrepreneurs‖ by Aruna Bhargava

The High Performance Entrepreneur by Subroto Bagchi ; Founder of Mindtree

Consulting,Bangalore

NSRCEL, N.S.Raghavan Centre for Entrepreneurship learning.

IIM,Bangalore;http://www.iimb.ernet.in

IIT, Delhi,Mumbai, Chennai; http://www.iitd.ac.in; http://www.iitm.ac.in

Goldman Sachs, http://www.gs.com

http://www.altassets.com

American Venture Capital Journal; http://www.americanventuremagazine.com

Ernst & Young, http://www.ey.com; 2006 VC Insights Report

Boston Consulting Group, http://www.bcg.com; 2006 Global VC Report

Planning Commission of India; http://www.planningcommissionindia.nic.in

NCAER, http://www.ncaer.com, National Centre of Applied Economic Research

http://www.ifc.org/

http://www.indiavca.com/

http://www.kpmg.com/

http://www.mckinsey.com/

http://www.nishithdesai.com/

http://www.iitd.ac.in/

http://www.gs.com/

http://www.altassets.com/

http://www.ey.com/

http://www.bcg.com/

http://www.ncaer.com/




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CMIE, http://www.cmie.com, Centre for Monitoring of Indian Economy

Wadhwani Foundation, NEN, http://www.nenonline.org

Harvard Business School, http://www.hbs.edu; HBS Working Knowledge

2006 Global Venture Capital Report; http://www.deloitte.com

World Economic Outlook: IMF; http://www.imf.org

Bank for International Settlements: http://www.bis.org

International Labour Organization; http://www.ilo.org

United Nations:http://www.un.org

http://www.cmie.com/

http://www.nenonline.org/

http://www.hbs.edu/

http://www.deloitte.com/

http://www.imf.org/

http://www.bis.org/

http://www.ilo.org/




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ANNEXURE

TABLE 2

Source : Global Entrepreneurship Monitor Report 2006




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Social,

cultural,

political

context

General National Framework

Conditions

Openness (external Trade)

Government (extent, Role)

Financial Markets (efficiency)

Technology, R&D (level,

intensity)

Infrastructure (efficiency)

Management (Skills)

Labor Markets (Flexibility)

Institutions (unbiased rule of

Law)

Major

established

Firms

Micro,

Small &

medium

Firms

National

Economic

Growth

GDP

Jobs

TABLE 4: GEM CONCEPTUAL MODEL : ELABORATION OF GENERAL

FRAMEWORK CONDITIONS

Social, cultural,

political context

Entrepreneurial

Framework

conditions

General National

Framework

conditions

Major

established

Firms

Micro,

Small &

medium

Firms

Entrepreneurial

Opportunities

Entrepreneurial

capacity

Business

Churning

National

Economic

Growth

GDP

Jobs

TABLE 3: GEM CONCEPTUAL MODEL: THE TOTAL PROCESS




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Source : Source : Global Entrepreneurship Monitor Report 2006

Social,

cultural,

political

context

Entrepreneurial Framework

Conditions

Financial Support

Government Policies

Government programs

Education and Training

R&D transfer

Commercial Infrastructure

Internal market openness

Physical Infrastructure

Cultural, Social Norms

Entrepreneurial

Opportunities

Entrepreneurial

capacity

Business

Churning

National

Economic

Growth

GDP

Jobs

TABLE 5: GEM CONCEPTUAL MODEL : ELABORATION OF

ENTREPRENEURIAL FRAMEWORK CONDITIONS




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TABLE 6

Source : Source : Global Entrepreneurship Monitor Report 2006




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Table 7: Adequacy of Social and Cultural Norms (2001)

Scale : 1- Completely false INDIA INDIA LOWEST HIGHEST AVERAGE

5 - Completely true 2000 2001 GEM 2001

Entrepreneurship is a

respected way to get rich 3.44 3.33 2.27 4.68 3.4

Japan USA

Entrepreneurship is a good

career choice for most 2.81 2.24 2.17 4.31 2.99

Finland Israel

Respect / status for successful

entrepreneurs 4.14 3.69 2.56 4.61 3.54

Australia USA

Media reports many stories of

successful entrepreneurs N.A. 3.79 2.77 4.2 3.55

Norway Israel

People think that only the

unemployed start new firms 2.92 3.24 2.58 4.44 3.45

Brazil Israel

AVERAGE 3.43 3.26 2.87 4.45 3.38

Sweden USA

Source : Global Entrepreneurship Monitor Report , India Report 2001

Table 8: Financial Support to New Firms (2001)



Equity funds for new/growing

firms available 1.69 3.14 2.18 4.17 3.17

Argentine USA

Debt funds for new/growing firms

available 2.03 3.54 1.82 4.19 3.05

Argentine USA

Public subsidies promote

startups 3.23 3.14 1.39 4.16 3.13

Argentina Germany

Private individuals are an

important source of funds 3.36 3.23 1.93 4.62 3.26

Brazil USA

VCs are an important source of

funds 2.89 3.22 1.87 4.57 3.21

Italy USA

IPOs are an important source of

funds 3.38 N.A. 1.21 4.19 3.22

Argentina Germany

AVERAGE 3.19 3.18 1.99 4.3 3.08

Argentina USA





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Table 9: Government Policy on New Firms (2001)



Government Policy favours

new firms 2.34 2.06 1.38 3.04 2.26

Argentina USA

New firms receive support from

the national government 2.78 2.58 1.26 3.78 2.93

Argentina UK

New firms receive support from

the local government 2.91 2.75 1.45 3.58 2.94

Argentina Finland

New firms get permits/licenses

in about a week 1.17 1.36 1.12 3.24 1.90

Argentina Singapore

Amount of taxes not a burden

for new/growth firm 2.55 2.47 1.35 3.70 2.36

Argentina Ireland

Government regulations are

predictable/consistent 2.66 2.56 1.24 4.11 2.59

Argentina Singapore

AVERAGE 2.40 2.30 1.30 3.45 2.50

Argentina Ireland


Table 10: Government Programs for New Firms (2001)



Government provides one stop

service to new firm 1.80 2.20 1.21 3.42 2.33

Argentina Singapore

Science parks / incubators help

start up of firm 2.57 2.67 1.79 3.97 3.09

Argentina France

New firm programs of the

government are adequate 2.86 2.47 1.35 4.31 3.01

Argentina Germany

Government personnel are

competent/effective 2.14 2.19 1.48 3.43 2.54

Argentina Ireland

Anybody needing new firm

assistance can find it 2.03 1.83 1.33 3.53 2.40

Argentina Germany

AVERAGE 2.28 2.27 1.43 3.57 2.67

Argentina Germany





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Table 11: Entreprenuerial capacity and the Education System (2001)



Education system encourages

self reliance 1.69 1.92 1.56 2.94 2.21

Portugal USA

Education system,/economic

market infrastructure adequate 1.58 1.72 1.47 2.59 1.99

Portugal Ireland

Education system gives attention

to entrepreneurship 1.36 1.64 1.28 2.32 1.76

Portugal Ireland

College/university

entrepreneurship course are

adequate 2.22 2.06 1.64 3.24 2.52

Portugal Singapore

Business/management

education is world-class 3.44 3.33 2.03 3.97 2.98Japan Spain

AVERAGE 2.06 2.13 1.65 2.84 2.29

Portugal Singapore


Table 12: Research & Development Transfer (2001)



Technology transfer between

universities and firms is

effective 2.14 2.00 1.73 3.24 2.43

Italy USA

New firms have good access

to R&D 2.03 2.24 1.67 3.00 2.20

S. Africa Belgium

New firms cannot afford new

technologies 4.06 2.31 1.72 3.18 2.33

Mexico Belgium

Adequate government

subsidies for new firm R&D 2.58 2.33 1.44 3.28 2.50

Argentina France

World class R&D technology

available in at least one sector 2.78 3.11 1.73 4.16 3.15

Argentina France

AVERAGE 2.72 2.40 1.87 3.26 2.52

Argentina Belgium





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Table 13: Commercial, Legal & professional Infrastructure (2001)



Adequacy of suppliers / sub

contractors for new firms 3.80 3.14 2.08 4.42 3.38

Japan USA

Suppliers / sub contractors

cost is affordable by new firms 2.11 2.97 3.51 2.88 2.84

Japan Spain

Easy for new firms to get

quality suppliers/sub

contractors 1.80 3.03 1.84 3.77 3.01

Japan Belgium

New firms get good

legal/accountancy services 3.36 2.64 2.22 3.36 2.59

Japan USA

New firms get good banking

service 3.03 3.65 1.43 4.11 3.19

Japan USA

AVERAGE 3.26 3.27 1.94 3.91 3.16

Japan USA


Table 14: Market Openness and Ease of entry(2001)



Dynamism of consumer market 2.80 3.46 2.02 4.11 2.88

Norway S. Korea

Dynamism of business market 2.52 2.97 2.21 3.71 2.84

Norway S. Korea

Barriers to market entry are too

high 3.20 2.68 2.13 3.64 2.78

S. Africa USA

New firms can afford to enter

new markets 1.69 2.64 2.10 3.36 2.59

S. Africa USA

Established firms don’t block

market entry 1.49 2.62 1.97 3.80 2.77

Japan Italy

Anti-trust regulation is well

enforced 1.49 1.97 1.67 3.58 2.82

Argentina

New

Zealand

AVERAGE 3.14 2.72 2.38 3.33 2.78

S. Africa USA





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Table 15 : Adequacy of Physical Infrastructure (2001)



Physical Infrastructure good for

new/growing firms 2.28 2.20 2.20 4.58 3.35

India Singapore

Cheap communication access

for new/growing firms 3.31 3.49 2.67 4.47 3.62

Hungary Germany

New/growing firms get

communication access in

about a week 2.25 2.74 2.00 4.50 3.55

Spain Singapore

New/growing firms can afford

the utility costs 3.31 2.64 2.22 2.69 2.59

Japan Singapore

New/growing firms get utility

access in about a month 2.51 2.64 2.64 4.63 3.75

India Singapore

AVERAGE 2.73 2.90 2.90 4.46 3.66

India Singapore





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Table 16 : Ease of starting business

Economy

Year 2003 2004 2005 2006 2003 2004 2005 2006

Ease of Doing Business Rank

.. .. 108 93 .. .. 138 134

Rank .. .. 141 128 .. .. 102 88

Procedures (number)13 13 13 13 11 11 11 11

Time (days) 48 48 48 35 89 89 71 35

Cost (% of income per capita)

17.8 15.9 13.6 9.3 53.4 49.5 62 73.7

Min. capital (% of income per

capita)

1,236.50 1,104.20 946.7 213.1 0 0 0 0

Rank .. .. 151 153 .. .. 154 155

Procedures (number) .. .. 28 29 .. .. 20 20

Time (days) .. .. 359 367 .. .. 270 270

Cost (% of income per capita)

.. .. 101.1 84 .. .. 678.5 606

Rank .. .. 77 78 .. .. 113 112

Difficulty of Hiring Index11 11 11 11 33 33 33 33

Rigidity of Hours Index20 20 20 20 20 20 20 20

Difficulty of Firing Index 40 40 40 40 70 70 70 70

Rigidity of Employment Index

23 23 24 24 41 41 41 41

Nonwage labor cost (% of

salary)

.. .. 44.5 44 .. .. 16.8 16.8

Firing costs (weeks of wages)

91 91 91 91 55.9 55.9 55.9 55.9

Rank .. .. 21 21 .. .. 108 110

Procedures (number).. 3 3 3 .. 6 6 6

Time (days) .. 32 32 32 .. 62 62 62

Cost (% of property value)

.. 3.1 3.1 3.1 .. 13.1 7.9 7.8

Registering Property

INDIACHINA

Starting a Business

Dealing with Licenses

Employing Workers




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Economy

Year 2003 2004 2005 2006 2003 2004 2005 2006

Rank .. .. 117 101 .. .. 96 65Legal Rights Index .. 2 2 2 .. 4 4 5

Credit Information Index.. .. 3 4 .. .. 2 3

Public registry coverage

(% adults).. .. 0.4 10.2 .. .. 0 0

Private bureau coverage

(% adults).. .. 0 0 .. .. 1.7 6.1

Rank .. .. 114 83 .. .. 33 33Disclosure Index .. .. 10 10 .. .. 7 7

Director Liability Index.. .. 1 1 .. .. 4 4

Shareholder Suits Index.. .. 2 4 .. .. 7 7

Investor Protection

Index.. .. 4.3 5 .. .. 6 6

Rank .. .. 169 168 .. .. 159 158Payments (number) .. .. 48 48 .. .. 59 59Time (hours) .. .. 872 872 .. .. 264 264Profit tax (%) .. .. .. 17.7 .. .. .. 14.3Labor tax and

contributions (%).. .. .. 51 .. .. .. 19.4

Other taxes (%) .. .. .. 8.3 .. .. .. 47.4

Total tax rate (% profit).. .. 77.4 77.1 .. .. 95.2 81.1

Rank .. .. 35 38 .. .. 139 139Documents for export

(number).. .. 6 6 .. .. 10 10

Time for export (days).. .. 20 18 .. .. 36 27

Cost to export (US$ per

container).. .. 335 335 .. .. 863 864

Documents for import

(number).. .. 11 12 .. .. 15 15

Time for import (days).. .. 24 22 .. .. 43 41

Cost to import (US$ per

container).. .. 375 375 .. .. 1,244 1,244

INDIA

Trading Across Borders

CHINA

Getting Credit

Protecting Investors

Paying Taxes




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Economy

Year 2003 2004 2005 2006 2003 2004 2005 2006

Rank .. .. 59 63 .. .. 173 173

Procedures

(number)31 31 31 31 56 56 56 56

Time (days) 292 292 292 292 1,440 1,420 1,420 1,420

Cost (% of debt)26.8 26.8 26.8 26.8 35.7 35.7 35.7 35.7

Rank .. .. 69 75 .. .. 128 133

Time (years) 2.4 2.4 2.4 2.4 11.3 10 10 10

Cost (% of

estate)22 22 22 22 9 9 9 9

Recovery rate

(cents on the

dollar)

31.7 31.7 31.5 31.5 10.6 12.2 12.8 13

GNI per capita

(US$).. .. 1,290 1,740 .. .. 620 720

Informal economy

estimate (% GNP)

.. .. 13.1 .. .. .. 23.1 ..

Population .. .. 1,290,000,000 1,304,500,000 .. .. 1,060,000,000 1,094,583,000

INDIACHINA

Enforcing Contracts

Closing a Business

Economy Characteristics

Source : Doing Business – The World Bank Group Report