global entrepreneurship monitor - national entrepreneurial...

The Australian Centre for Entrepreneurship Research

GLOBAL ENTREPRENEURSHIP MONITORNational Entrepreneurial Assessment for Australia

GEM Australia – 2011 National Report

GLOBAL ENTREPRENEURSHIP MONITORNational Entrepreneurial Assessment for Australia


Australian team members: Professor Per Davidsson, Assocate Professor Paul Steffens and Dr Michael Stuetzer

Australian sponsor: The Australian Centre for Entrepreneurship Research, QUT Business School

GEM data was used in the preparation of this report. Its interpretation and use are the sole responsibility of the authors.

Business School Australian Centre for Entrepreneurship Research

What is GEM?In 2011, the Global Entrepreneurship Monitor (GEM) study was conducted across 54 countries. Over 140, 000 adults aged between 18 and 64, including 2,000 in Australia were interviewed. GEM differs from other studies in that by surveying the adult population, it identifies entrepreneurs at the very earliest stages of new business creation.

Highlights• Australia’s entrepreneurship rate is second only to the

USA amongst developed countries.

• We estimate that 10.5 per cent of the Australian adult population were actively engaged in starting and running new businesses in 2011. This equates to 1.48 million early-stage entrepreneurs.

• Of the estimated 1.48 million early-stage entrepreneurs:

• 40 per cent or 590,000 were women

• 33 per cent or 580,000 expected to create at least five new jobs in the next five years

• 11 per cent or 170,000 expected to create 20 or more new jobs in the next five years

• Australia also ranks above average for employee entrepreneurial activity in established firms. An estimated 5 per cent of the adult population is engaged in developing or launching new products, a new business unit or subsidiary for their employer.

• Australia was one of only three developed countries, together with the US and Netherlands, that ranked above average for both entrepreneurship rate and employee entrepreneurial activity.

• Australia outperforms most other developed countries on indicators of the quality and economic impact of its business start-ups, including growth aspirations, number of opportunity-driven start-ups and innovativeness.

• The vast majority of start-ups in Australia are founded on a desire to take advantage of perceived opportunities with only one in five new ventures started out of the necessity to earn a living.

• While the global economic slowdown clearly increased the level of necessity-driven entrepreneurship in Australia, this increase is not as strong as that experienced in the USA.

• Approximately 50 per cent of Australians believe that good opportunities exist for the establishment of new ventures, and that they possess the skills to start a business. This is well above international averages.

• International orientation is below average for Australian early-stage entrepreneurs, most likely due to the geographic distance to international markets.

• Australian entrepreneurship is comparatively inclusive. For example, at 8.4 per cent female total entrepreneurial activity is second only to the USA.

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Executive summary

This report maps the current state of entrepreneurship in Australia using data from the Global Entrepreneurship Monitor (GEM) for the year 2011.

Entrepreneurship is regarded as a crucial driver for economic well-being. Entrepreneurial activity in new and established firms drives innovation and creates jobs. Entrepreneurs also fuel competition thereby contributing indirectly to market and productivity growth along with improving competitiveness of the national economy. Given the economic landscape that exists as a result of the global financial crisis (GFC), it is probably more important than ever for us to understand the effects and drivers of entrepreneurial activity and attitudes in Australia.

The central finding of this report is that entrepreneurship is certainly alive and well in Australia. With 10.5 per cent of the adult population involved in setting up a new business or owning a newly founded business as measured by the total entrepreneurial activity rate (TEA) in 2011, Australia ranks second only to the United States among the innovation-driven (developed) economies. Compared with 2010 the TEA rate has increased by 2.7 percentage points. Furthermore, in regard to employee entrepreneurial activity (EEA) rate in established firms, Australia ranks above average. According to GEM data, 5 per cent of the adult population is engaged in developing or launching new products, a new business unit or subsidiary for their employer.

Further analysis of the GEM data also clearly shows that Australia compares well with other major economies in terms of the ‘quality’ of entrepreneurial activities being pursued. Indeed, it is not only the quantity of entrepreneurs but also the level of their aspirations and business goals that are important drivers for economic growth. On average, for each business started in Australia driven by the lack of alternatives for the founder to generate income from any other

source, there are five other businesses started where the founders specifically want to take advantage of a business opportunity that they believe will increase their personal income or independence. With respect to innovativeness, 31 per cent of Australian new businesses offer products or services which they consider to be new to customers or where very few, or in some cases no, other businesses offer the same product or service. Both these indicators are higher than the average for innovation-driven economies. Somewhat below average is the international orientation of Australian entrepreneurs whereby only 12 per cent aim at having a substantial share of customers from international markets.

So what drives this high quantity and quality of entrepreneurship in Australia? The analysis of the data suggests it is a combination of both business opportunities and entrepreneurial skills. It seems that around 50 per cent of the Australian population identify opportunities for a start-up venture and believe that they have the necessary skills to start a business. Furthermore, a large majority of the Australian population report that high media attention for entrepreneurship provides successful role models for prospective entrepreneurs. As a result, 12 per cent of our respondents have expressed the intention to start a business within the next three years. These numbers are all well above average when compared to the other major economies.

With regard to gender, the GEM survey shows a high proportion of female entrepreneurs. Approximately 8.4 per cent of adult females are actually involved in setting up a business or have recently done so. Although this female TEA rate is slightly down from 2010, Australia ranks second among the innovation-driven economies. This paints a healthy picture of access to entrepreneurial opportunities for Australian women.

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ContentsExecutive summary 1

1 Introduction and background 3

1.1 The GEM research approach 3

2 A global snapshot of entrepreneurship 6

2.1 Entrepreneurship and stage of economic development 6

3 Entrepreneurship trends through the global financial crisis 9

4 Australia’s level of entrepreneurial activity: phases 11

4.1 Total early-stage entrepreneurial activity 11

4.2 Established business ownership and discontinuation 11

4.3 Potential entrepreneurs 13

5 Indicators of the impact of entrepreneurial activity 15

5.1 Job growth expectations 15

5.2 Innovativeness 16

5.3 Motivation 16

5.4 Internationalisation 17

6 Australia’s entrepreneurship profile 18

6.1 Industry sector 18

6.2 Inclusiveness 18

6.2.1 Women’s participation in entrepreneurship 19

6.2.2 Age distribution of early-stage entrepreneurship 19

7 Australia’s institutional context (entrepreneurship framework conditions) 20

8 Special topic: entrepreneurial employee activity 21

9 Conclusions and policy implications 23

List of figuresFigure 1: The institutional context and its

relationship to entrepreneurship 4

Figure 2: The entrepreneurship process and GEM operational definitions 4

Figure 3: Total early-stage entrepreneurial activity (TEA) in 54 participating countries, 2011 7

Figure 4: Percentage of necessity-driven vs. improvement-driven entrepreneurship by level of economic development 8

Figure 5: Improvement-driven opportunity motive total early-stage entrepreneurial activity (TEA) 2006–2011 10

Figure 6: Necessity-driven motive total early-stage entrepreneurial activity (TEA) 2006–2011 10

Figure 7: Total early-stage entrepreneurial activity (TEA) in 23 innovation-driven economies, 2011 12

Figure 8: Growth expectations of early-stage entrepreneurs, 2011 15

Figure 9: Innovative early-stage entrepreneurial activity, 2011 17

Figure 10: Motives of early-stage entrepreneurs, 2011 18

Figure 11: Percentage of early-stage entrepreneurs (TEA) with more than 25 per cent international customers, 2011 17

Figure 12: Sector distribution of total early-stage entrepreneurial activity (TEA), 2011 18

Figure 13: Comparison of female and male early stage entrepreneurship (TEA) rates, 2011 19

Figure 14: Age distribution of early-stage entrepreneurs (TEA), 2011 19

Figure 15: Expert ratings on entrepreneurship framework conditions, 2011 20

Figure 16: Employee entrepreneurial activity (EEA), 2011 21

Figure 17: Employee entrepreneurial activity (EEA) and total early-stage entrepreneurial activity (TEA) in innovation-driven economies, 2011 22

List of tablesTable 1: Entrepreneurial activity across the

entrepreneurial process 12

Table 2: Entrepreneurial perceptions, societal attitudes, and intentions among innovation-driven economies, 2011 14

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1 Introduction and backgroundMost policy makers and academics agree that entrepreneurship is critical to the development and well-being of society. Entrepreneurs create jobs. They drive and shape innovation, thereby speeding up structural changes in the economy. By introducing new competition, they contribute indirectly to increased productivity and overall economic activity. Entrepreneurship is thus a catalyst for economic growth and national competitiveness.

In 2011, the Global Entrepreneurship Monitor (GEM) conducted its 13th annual survey of the rate and profile of entrepreneurial activity around the globe. GEM interviewed over 140,000 adults aged between 18 and 64 in 54 economies, spanning diverse geographies and a range of development levels. The Australian Centre for Entrepreneurship Research (ACE) participated as the Australian GEM partner, surveying 2000 Australian adults.

The 2011 GEM study also investigated entrepreneurial employee activity (EEA) as a special to countries.

This report provides a summary of entrepreneurship in Australia as measured by GEM, and benchmarks this against other countries. We compare the level of entrepreneurship in the population across different phases of the entrepreneurial process, and provide a profile of some key characteristics of entrepreneurs and the businesses they are starting. We also report on some of the institutional and framework conditions that support entrepreneurship.

1.1 The GEM research approach1

Figure 1 illustrates the GEM conceptual model of the institutional environment and its impact on entrepreneurship. As this figure shows, two sets of conditions, basic requirements and efficiency enhancers are foundation conditions that influence the way a society functions and contributes to the well-being of its people. These conditions have been adopted from the World Economic Forum’s (WEF) Global Competitiveness Report2. It is important to note that they are framework conditions that impact economic activity. More generally however they are critical to entrepreneurship because, without a solid institutional foundation, the entrepreneurship-specific factors cannot function effectively.

The entrepreneurship-specific conditions are represented in nine entrepreneurship framework conditions (EFC) as shown in Figure 1. Information on these is collected through a national expert survey (NES) conducted by GEM national teams. The framework conditions, or institutional environment, are of critical significance to the study of entrepreneurship because it can represent conditions that entrepreneurs must navigate and levers that policy makers can address.

• The phases and profile of entrepreneurship

GEM recognises that an economy’s prosperity is highly dependent on a dynamic entrepreneurship sector. This holds true across all stages of new venture development, yet the rate and profile of entrepreneurs varies considerably. Figure 2 illustrates the GEM measures across phases of entrepreneurial activity, with an added emphasis on profile factors.

• Phases

GEM represents entrepreneurship as occurring in distinct phases. Because the conditions impacting entrepreneurship in different societies are diverse, complex and interdependent, it is difficult to specify that one phase necessarily leads to another. For example, a society with many potential entrepreneurs may have a low rate of entrepreneurial activity due to particular environmental constraints. Consequently, the arrow connecting the phases is shown as being uneven to remind us that the relationship is not definitive.

1 Adapted From: Kelley, Donna, Herrington, Mike, and Singer, Slavica. (2012). Global Entrepreneurship Monitor (GEM) 2011 Annual Global Report. London: Global Entrepreneurship Research Association.

2 Schwab, Klaus, ed. The Global Competitiveness Report 2011–2012. Geneva: World Economic Forum, 2011.

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Figure 2: The entrepreneurship process and GEM operational definitions

Entrepreneurship profile

Impact• Business growth• Innovation• Motivation• Internationalsation

Industry• Sector

Impact• Sex• Age

Total early stage (TEA) entrepreneurial activity

Potential entrepreneurs

beliefs and abilities

Intentions Nascent New Established

DiscontinuanceEntrepreneurship phases

Source: Adapted with minor changes from GEM 2011 Global Report.

Figure 1: The institutional context and its relationship to entrepreneurship

Established firms

Employee entrepreneurial activity

Social, cultural, political context

From other available sources

Entrepreneurship Profile

Basic requirements• Institutions• Infrastructure• Macroeconomic stability• Health and primary education

AttitudesPerceived opportunites and capabilities; fear of failure; status of entrepreneurship

Socio-economic development(jobs, innovation, social value)

ActivityOpportunity/necessity-driven, early stage; inclusiveness; industry; exits

AspirationsGrowth, innovation international orientation, social value creation

Efficiency enhances• Higher education and training• Good market efficiency• Labor market efficiency• Financial market sophistication• Technological readiness• Market size

Innovation and entrepreneurship• Entrepreneurial finance• Government policy• Government entrepreneurship

programs• Entrepreneurship education• R&D transfer• Internal market openness• Physical infrastructure for

entrepreneurship• Commercial, legal

infrastructure for entrepreneurship

• Cultural and social norms

From GEM 2011 adult population surveys (APS)

From GEM adult population

surveys (APS)

From GEM national expert surveys (NES)

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Given these challenges, it is therefore important to focus not just on one single indicator, but to look at patterns across all of the phases in order to assess the state of entrepreneurship for an economy. For example, an economy with a low number of established business owners may also have few individuals starting new businesses and therefore a low supply of entrepreneurs that could otherwise become business owners. At the same time, a lot of start-up activity accompanied by a relatively low number of established businesses could point to either a lack of sustainability of these start-ups or environmental constraints that make it difficult to stay in business over time.

The phases specified in Figure 2 begin with potential entrepreneurs: those who see opportunities in their area and believe they have the capabilities to start businesses. Other beliefs include the extent to which they are undeterred by fear of failure when they recognise opportunities. In addition, the influence that broader society can have on the perception of entrepreneurship as a career choice, the status of entrepreneurs in society and how they are represented in the media, all need to be considered.

The cycle continues through to the intent to start a business. This is followed by nascent activity, represented as those who are in the process of starting a business. These new ventures are generally seen as being less than three months old. New business owners are former nascent entrepreneurs, who have been in business more than three months, but less than 3½ years. Together, nascent and new entrepreneurs compose total early-stage entrepreneurial activity (TEA).

Additional phases include established business ownership as well as business discontinuation. Business discontinuation may have positive outcomes given that experienced entrepreneurs may go on to start another business, use their expertise and resources to support other start-ups (by financing, advising, or other forms of support), or contribute through employment activity.

• Profile

A key differentiator of the GEM study is that it recognises that it is not simply enough to study only the numbers of entrepreneurs and compare numbers with other economies. The profile of entrepreneurship—the individuals participating in this activity and the emerging ventures they start—differ considerably across economies, and need to be taken into account.

Firstly, the full potential of a society’s emerging entrepreneurs is more likely to be realised when entrepreneurship is seen to be inclusive, that is, available to all people in a society, including women and young people. Secondly, entrepreneurs will differ in terms of the sector in which they start businesses (consumer, extractive, manufacturing, business services). Finally, entrepreneurs impact society in a number of ways including through their innovativeness, their international reach, and their growth ambitions.

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2 A global snapshot of entrepreneurship

The GEM study saw over 140,000 adults aged 18 to 64 years in 54 economies interviewed. The interviewees spanned a broad range of diverse geographies and a development levels.

TEA is the primary barometer of the level of entrepreneurial activity assessed by the GEM study. Based on this study, the scale of global entrepreneurship is clearly evident. GEM estimated that there were 388 million early-stage entrepreneurs actively engaged in starting and running new businesses in 2011. This represents an average of 10.9 per cent of the adult population across the 54 participating countries. Of these, there was an estimated:

• 163 million (42 per cent) women early-stage entrepreneurs

• 141 million (36 per cent) early-stage entrepreneurs expecting to create at least five new jobs in the next five years

• 65 million (17 per cent) early-stage entrepreneurs expecting to create 20 or more new jobs in the next five years.

In Australia, we estimated that there were 1.48 million early-stage entrepreneurs actively engaged in starting and running new businesses in 2011. This represents 10.5 per cent of the adult population. Of these, there was an estimated:

• 590 thousand (40 per cent) women early-stage entrepreneurs

• 580 thousand (33 per cent) early-stage entrepreneurs expecting to create at least five new jobs in the next five years

• 170 thousand (11 per cent) early-stage entrepreneurs expecting to create 20 or more new jobs in the next five years.

2.1 Entrepreneurship and stage of economic development

Since entrepreneurship tends to play a different role in each individual economy depending on the stage of economic development that each economy is at, GEM groups the participating economies into three groups based on the World Economic Forum’s (WEF) Global Competitiveness Report3. This classification is based on and takes into account important economic characteristics such as gross domestic product (GDP) per capita and the share of exports comprising primary goods. These groups are:

• factor-driven economies – these are the least developed economies dominated by subsistence agriculture and extraction businesses, with a heavy reliance on labour and natural resources

• efficiency-driven economies – these are developing economies accompanied by industrialisation and an increased reliance on economies of scale, with capital-intensive large organisations more dominant

• innovation-driven economies – these are more advanced economies in which businesses are increasingly knowledge intensive, with an expanding service sector.

Figure 3 compares TEA for all 54 countries that participated in the GEM study in 2011. It is clear that TEA rates vary between the three categories of economies – with higher average levels of entrepreneurial activity observed in factor-driven and efficiency-driven economies than for innovation-driven economies.

3 Schwab, Klaus, ed. The Global Competitiveness Report 2011–2012. Geneva: World Economic Forum, 2011.

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Figure 3: Total early-stage entrepreneurial activity (TEA) in 54 participating countries, 2011

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Note: Vertical bars mark the 95 per cent confidence interval of TEA, the horizontal line marks the mean of TEA4.Source: Adapted with minor changes from GEM 2011 Global Report.

4 To assist with interpretation we have provided some background information on confidence intervals. The TEA rate is estimated on base of subsample of the adult population–in Australia we interviewed 2,000 individuals. This is a representative but nevertheless small sample of the Australian population. Estimation based on small samples comes at the expense of some measurement uncertainty as the true TEA rate among all Australians is unknown. The confidence interval now indicates the reliability of this estimate. The 95 per cent confidence interval of the TEA in Australia ranges from nine per cent to 12 per cent and can be interpreted as follows. If the estimation would be repeated many times, in 95 per cent of these times the confidence intervals would include the true value of the TEA rate in Australia. In other words, the confidence interval gives a plausible range of values of the true TEA rate.

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A key difference in the characteristics of entrepreneurship between economies with different levels of development can be observed by comparing the primary motivations of the entrepreneurs. Entrepreneurs may be pushed into starting a business out of necessity because they have no other work options and need a source of income – necessity entrepreneurship. On the other hand, they may be pulled into starting businesses because they recognise opportunities and choose to pursue them. GEM also refers to improvement-driven opportunity, which is when individuals start businesses to improve their incomes or independence in their work.

Figure 4 clearly illustrates the differences in the motivations typically driving entrepreneurship at different levels of economic development. Entrepreneurs in factor-driven economies tend to be driven equally by necessity and opportunities for improvement. With greater economic development levels, necessity decreases as a motivator, while improvement-driven opportunity motives increase.

Figure 4: Percentage of necessity-driven vs. improvement-driven entrepreneurship by level of economic development

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Efficiency-driven economies


Necessity-driven (% of TEA)

Improvement-driven (% of TEA)

Source: 2011 GEM Report.

Innovation-driven economies such as the UK, the US and Germany provide the most relevant group of countries against which to benchmark Australia. Throughout this report, we will mainly compare Australia with the other innovation-driven economies.

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3 Entrepreneurship trends through the global financial crisis

To examine the impact of the GFC on entrepreneurship rates, we analysed trends over the period 2006 to 2011.

GEM data is collected in May and June, so the 2006 to 2008 figures represent the situation prior to the Lehman Brothers collapse (September 2008), which signalled the beginning of the GFC. Australia did not participate in GEM over the period 2007 to 2009. Australian data is only available for 2006 (data collected by Swinburne University of Technology), 2010 and 2011. ACE joined the GEM consortium as the Australian partner in 2010. We compare Australia with the other participating GEM countries overall, other innovation-driven economies and the USA.

Figures 5 and 6 illustrate the trends in TEA for improvement-driven, opportunity-motivated and necessity-motivated business from 2006 to 2011.

Economic downturn generally impacts on entrepreneurial activity in two ways. Firstly, there may be fewer attractive business opportunities for potential entrepreneurs to exploit. Hence, we can expect opportunity-motivated entrepreneurial activity to decline. Secondly, softer economic conditions leads to higher unemployment and fewer possibilities for paid employment. Hence we can expect necessity-motivated entrepreneurship rates to increase, as more individuals are pushed towards starting new businesses and self-employment as a way to generate sufficient income.

What impact did the GFC have on entrepreneurial activity relating to improvement-driven opportunities? Based on the GEM average across all participating countries, there

is negative impact on improvement-driven opportunity TEA. The TEA rate remained steady over 2009 to 2011 averaging 5 per cent which is lower than the 2006 to 2008 average level (approximately 6 per cent).

For the advanced innovation-driven economies, entrepreneurial trends also show a post-GFC dip in 2009 and 2010, but a partial recovery in 2011. This trend is even clearer when examining the data for the USA, which appears to have almost fully recovered in terms of opportunity entrepreneurship by 2011. The other innovation-driven economies are dominated by European countries which are more strongly affected by the on-going European debt situation, and have on average not recovered as much as the USA and Australia.

For Australia, although we do not have data available for 2007 to 2009, it is clear that we closely track the USA for 2010 and 2011. Hence, it appears that in terms of opportunity entrepreneurship, Australia too was affected by the GFC in 2010 (and presumably 2009), but has made a good recovery in 2011. Although it seems that the GFC had a substantial impact on new business entry, we know from the CAUSEE research project5 that the GFC had little effect on those already engaged in early-stage entrepreneurial activity.

5 Davidsson, P. and Gordon, S. (2012). ‘Much Ado about Nothing? The Surprising Persistence of Nascent Ventures through the Global Financial Crisis’. Paper presented at the ACERE-DIANA Conference, Fremantle, Feb. 1–3, 2012.

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Figure 5: Improvement-driven opportunity motive total early-stage entrepreneurial activity (TEA) 2006–2011

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The impact of the GFC for necessity-driven entrepreneurship was entirely different. For GEM participating countries as a whole, there is a clear post-GFC increase in necessity entrepreneurship rates in 2009, peaking in 2010 and dropping in 2011, however the increases did not get back to pre-GFC levels. For the advanced innovation-driven economies there is, on average, no clear impact of the GFC. However for the USA, there is a clear increase in necessity-driven entrepreneurship post-GFC, which continues to increase through to 2011.

Figure 6: Necessity-driven motive total early-stage entrepreneurial activity (TEA) 2006–2011

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The impact of the GFC on necessity-driven entrepreneurship in Australia is somewhat unclear. Most likely, there has been a small increase post GFC with levels at 1.5 per cent in 2010 and 1.6 per cent in 2011 compared with 1.2 per cent in 2006. However, with missing data between 2007 and 2009, it is highly speculative whether this small increase is associated directly with the GFC. Nonetheless, it is clear that Australia does not have a strong increase in necessity-driven entrepreneurship to the extent that was experienced in the USA.

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4 Australia’s level of entrepreneurial activity: phasesIn this section we compare the rate of individual participation in entrepreneurship in Australia with that in other countries. We therefore present findings for various phases of entrepreneurship: potential entrepreneurs who have intentions to found a business, those early-stage entrepreneurs who are actually starting and running a new business, owners of established businesses, and individuals who disengaged from their businesses.

4.1 Total early-stage entrepreneurial activity

Table 1 shows the percentage of individuals in the adult population of each economy who are engaged in the various phases of entrepreneurship. We have distinguished between individuals who are in the process of starting a business (nascent entrepreneurship), those operating a new business, which is up to 3½ years old (new business ownership), those operating an established business, and individuals with discontinued businesses. The nascent entrepreneurship rate combined with the new business ownership rate forms the TEA within an economy.

With 10.5 per cent of the adult population in 2011 involved in the process of setting up a business or owning a newly founded business (TEA rate), Australia ranks second only to the United States among the innovation-driven (developed) economies. This can also be seen in Figure 7, which depicts the TEA rate across the 23 innovation-driven economies. Compared with 2010 the TEA rate has increased by 2.7 percentage points in Australia.

Comparing Australia with the US, we see that we are behind in the overall TEA with 10.5 per cent compared with 12.3 per cent. However, our new business ownership rate, 4.7 per cent is ahead of the USA, which stands at 4.3 per cent. In fact, in the group of innovation-driven economies, our new business ownership rate is ranked number two behind South Korea, at 5.1 per cent. Rather, it is those who are in the process of starting a business where we fall slightly behind the USA, at 6 per cent compared with 8.3 per cent. One explanation is that while more Americans are attempting to start new businesses than Australians, they are less successful on average in getting these businesses up and running.

4.2 Established business ownership and discontinuation

Australia’s rate of established business ownership is estimated to be 9.1 per cent, again substantially above the international average for advanced economies of 7.2 per cent. Within the last year the established business ownership rate in Australia has remained approximately steady.

Starting or running a business is risky and it is inevitable that some firms will go out of business. In 2011 the rate of discontinued businesses in Australia was 4.3 per cent. As a percentage of both established and new businesses, this was 31 per cent, approximately the same as the average of developed economies. In that sense the relatively high rate of discontinuances simply reflects the healthy renewal of the business population in Australia. Indeed, many business closures are not failures but successful business exits or result from better alternative opportunities for the founders. Other research conducted in Australia by ACE (The Comprehensive Study of Entrepreneurial Emergence – CAUSEE6) has identified that Australia has very few closures that could be considered to be disastrous. Taken together we can conclude that entrepreneurship is alive and well in Australia.

6 Davidsson, Per, Steffens, Paul R., Gordon, Scott R., & Reynolds, Paul (2008) Anatomy of New Business Activity in Australia: Some Early Observations from the CAUSEE Project. QUT working paper, Brisbane. http://eprints.qut.edu.au/13613

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Table 1: Entrepreneurial activity across the entrepreneurial process

Nascent entrepreneurship rate

New business ownership rate

Early-stage entrepreneurial activity (TEA)

Established business ownership rate

Discontinuation of businesses

Discontinuation as a percentage of established and new businesses

average (unweighted)

4.0 3.0 6.9 7.2 2.7 29%

Australia 6.0 4.7 10.5 9.1 4.3 31%

Belgium 2.7 3.0 5.7 6.8 1.4 14%

Czech Republic 5.1 2.7 7.6 5.2 2.7 34%

Denmark 3.1 1.6 4.6 4.9 2.3 35%

Finland 3.0 3.3 6.3 8.8 2.0 17%

France 4.1 1.7 5.7 2.4 2.2 54%

Germany 3.4 2.4 5.6 5.6 1.8 23%

Greece 4.4 3.7 8.0 15.8 3.0 15%

Ireland 4.3 3.1 7.2 8.0 3.4 31%

Japan 3.3 2.0 5.2 8.3 0.7 7%

South Korea 2.9 5.1 7.8 10.9 3.2 20%

Netherlands 4.3 4.1 8.2 8.7 2.0 16%

Norway 3.7 3.3 6.9 6.6 2.5 25%

Portugal 4.6 3.0 7.5 5.7 2.9 33%

Singapore 3.8 2.8 6.6 3.3 2.1 34%

Slovenia 1.9 1.7 3.7 4.8 1.5 23%

Spain 3.3 2.5 5.8 8.9 2.2 19%

Sweden 3.5 2.3 5.8 7.0 3.2 34%

Switzerland 3.7 2.9 6.6 10.1 2.9 22%

Taiwan 3.6 4.4 7.9 6.3 4.9 46%

UAE 3.7 2.6 6.2 2.7 4.8 91%

United Kingdom 4.7 2.6 7.3 7.2 2.0 20%

United States 8.3 4.3 12.3 9.1 4.4 33%


Figure 7: Total early-stage entrepreneurial activity (TEA) in 23 innovation-driven economies, 2011

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Innovation-driven economics

Note: Vertical bars mark the 95 per cent confidence interval of TEA, the horizontal line marks the mean of TEA.Source: Adapted with minor changes from GEM 2011 Global Report.

13

4.3 Potential entrepreneursArguably every individual has the potential to become an entrepreneur. Some of them will venture into entrepreneurship while others – for various reasons – will not. It is therefore important to understand the influence of individual perception of abilities as well as the perception of societal attitudes towards entrepreneurship that together impact individuals’ vocational choice.

The left part of Table 2 gives an overview of individual perception of abilities and beliefs. Approximately 50 per cent of the Australian population perceive good founding opportunities for a start-up venture and believe that they have the necessary skills to start a business. Both measures are well above international average. Somewhat higher than the international average is the perceived fear of failure, which can discourage individuals from starting their own firm.

Apart from the perception of skills and founding opportunities, the individual perception of societal attitudes can greatly influence entrepreneurial activity.

The middle part of Table 2 shows that a majority of the Australian population a) sees entrepreneurship as a good career choice, b) reports a high societal status for successful business founders, and c) perceives considerable media attention for entrepreneurship. Although Australia ranks above the international average only with respect to the latter of the three characteristics, Australian societal attitudes are all in all pro entrepreneurship.

• Intentions

Entrepreneurial intentions represent the percentage of individuals who expect to start a business within the next three years. Given that intentions generally precede behaviour, entrepreneurial intentions are an important measure of potential entrepreneurship in a society7. The right part of Table 2 presents the percentage of those currently not engaged in early-stage entrepreneurial activity, which expects to found a business in the next three years. With 12 per cent of the non-entrepreneurial adult population expressing such an intention, Australia ranks in the top 5 among the innovation-driven economies.

7 See GEM 2011 Global Technical Report at www.gemconsortium.org

14

Table 2: Entrepreneurial perceptions, societal attitudes and intentions among innovation-driven economies, 2011

Perceptions Societal attitudes Intentions

Perceived opportunities

Perceived capabilities

Fear of failure*

Entrepreneurship as a good career choice

High status to successful entrepreneurs

Media attention for entrepreneurship

Entrepreneurial intentions **

average 35 41 38 57 69 58 10

Australia 48 47 43 54 68 70 12

Belgium 43 44 41 64 55 47 11

Czech Republic

24 39 35 49 14

Denmark 47 35 41 7

Finland 61 37 32 46 83 67 7

France 35 38 37 66 68 47 18

Germany 35 37 42 55 78 50 5

Greece 11 50 38 61 69 32 10

Ireland 26 46 33 46 83 56 6

Japan 6 14 42 26 55 57 4

South Korea 11 27 45 61 67 62 16

Netherlands 48 42 35 83 67 62 9

Norway 67 33 41 53 80 60 9

Portugal 17 47 40 12

Singapore 21 24 39 54 63 77 12

Slovenia 18 51 31 54 70 45 9

Spain 14 51 39 65 66 45 8

Sweden 71 40 35 52 71 62 10

Switzerland 47 42 31 10

Taiwan 39 29 40 69 63 86 28

UAE 44 62 51 71 73 63 2

UK 33 42 36 52 81 47 9

US 36 56 31 11

* fear of failure assessed among those seeing opportunities.** intentions assessed in non-entrepreneur (non-TEA) population.Source: Adapted with minor changes from GEM 2011 Global Report.

15

5 Indicators of the impact of entrepreneurial activity

Businesses are different and so too is their impact on the national economy. This section profiles the potential impact of entrepreneurship in Australia, by exploring several indicators of the size and quality of the business ventures being started by Australian entrepreneurs, namely:

• the perceived job-creation potential of their businesses

• the perceived innovativeness of their business ideas

• the motivation of the entrepreneur for staring a new business

• the entrepreneur’s ambition to serve international markets.

5.1 Job growth expectationsGrowth expectations measure how many employees the entrepreneurs expect to employ in five years. Research has shown that growth expectations are indeed a good

indicator of later actual growth of the firms8. This measure can be interpreted as the expected direct contribution of new firms to job growth in Australia.

Figure 8 presents the TEA rate at three levels of growth expectations: 0–4 (low growth expectations), 5–19 (medium growth expectations), and 20 or more employees (high growth expectations). Approximately 4.2 per cent of the adult population start businesses that they expect to grow larger than five employees and 1.4 per cent expect exceptionally high growth (larger than 20 employees). Australia is placed well above average when compared with other innovation-driven economies.

8 For example: Baum, R., Locke, E., and Smith, K. (2001) ‘Multidimensional Model of Venture Growth.’ In The Academy of Management Journal, 44(2): 292–303. Wiklund, J. and Shepherd, D. (2003). ‘Aspiring for, and Achieving Growth: The Moderating Role of Resources and Opportunities’. Journal of Management Studies 40(8):1919–1941.

Figure 8: Growth expectations of early-stage entrepreneurs, 2011

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16

5.2 InnovativenessInnovative businesses are regarded as agents of change as they introduce new products or services into the market thereby fostering product variety for customers and contributing to national competitiveness. Therefore, an important dimension of innovativeness is the level of novelty from the perspective of the market and the industry. Hence, GEM adopts a relative and context-dependent assessment of the innovativeness of the new business opportunity. GEM asks entrepreneurs whether their product or service is new to some or all customers and whether few or no other businesses offer the same product.

Figure 9 presents the rate of innovative early-stage entrepreneurial activity. With 3.2 per cent of the adult population starting firms with innovative products, Australia ranks second only to the US in innovative new firms. 5.3 Motivation

Entrepreneurs have different motives for entering entrepreneurship. An important distinction is made between individuals who are pushed into entrepreneurship because of lacking other job alternatives and individuals who are pulled into entrepreneurship because of lucrative business opportunities.

Exploring this distinction, Figure 10 shows the distribution of necessity-driven entrepreneurship and improvement-driven opportunity entrepreneurship. On average, for each business started in Australia out of the necessity to earn a living due to a lack of alternatives for the founder, there are five other businesses started where the founders specifically want to take advantage of a lucrative business opportunity in order to increase their personal income or enjoy greater independence. This ratio is substantially higher than the average for the other innovation-driven economies.

Figure 9: Innovative early-stage entrepreneurial activity, 2011

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17

Figure 10: Motives of early-stage entrepreneurs, 2011

Necessity-driven (% of TEA)

Improvement-driven opportunity (% of TEA)

70%

80%

60%

50%

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30%

20%

10%

0%Australia Innovation-driven economies

(average)

Ratio 1:5

Ratio 1:3


5.4 InternationalisationInternationalisation measures the extent to which early-stage entrepreneurs sell to customers outside their domestic market. In general, serving international markets signals both high ambitions and international competitiveness of a country’s early stage entrepreneurs.

Unlike the other dimensions of the impact of our early stage entrepreneurs, Australian entrepreneurs rank below average with respect to international orientation. As illustrated in Figure 11, just 12 per cent aim at a substantial share of customers from international markets, compared with an average of 19 per cent for other innovation-driven economies. Most likely this is due to the comparatively large distances between Australia and its closest international markets. The majority of the comparative counties with high international orientations have rather small domestic markets or are European sharing borders with other countries.

Figure 9: Innovative early-stage entrepreneurial activity, 2011

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Figure 11: Percentage of early-stage entrepreneurs (TEA) with more than 25 per cent international customers, 2011

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18

6 Australia’s entrepreneurship profileEntrepreneurs do not form a uniform group generally differing in many aspects. Therefore, a simple count of entrepreneurs does not fully describe the diverse profile of entrepreneurship and its impact to the Australian economy. This section looks at two characteristics of Australia’s entrepreneurship profile:

• industry – the distribution of entrepreneurial activity across key economic sectors

• inclusiveness – specifically the distribution of entrepreneurs by gender and age.

6.1 IndustryThe distribution of early-stage entrepreneurs by industry is shown in Figure 12. In general the sectorial distribution of Australian businesses is comparable with other innovation-driven economies. Most Australian new firms are consumer-oriented (34 per cent) or business services (31 per cent). Because Australia is rich in natural resources, new businesses in the extractive sector (6 per cent) and the transforming sector (29 per cent) are relatively common compared to other innovation-driven economies.

Figure 12: Sector distribution of total early-stage entrepreneurial activity (TEA), 2011

Extractive Transforming

Business services Consumer-oriented

70

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100

60

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30

20

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0Australia Innovation-Driven Economies

29%22%

31%

28%

34%45%

6% 4%


6.2 InclusivenessInclusiveness refers to access to entrepreneurial opportunities within a society. If two individuals have equal skills and resources, access to entrepreneurial opportunities should ideally not be discriminated by individual characteristics such as gender, age and ethnicity.

19

6.2.1 Women’s participation in entrepreneurship

Figure 13 presents the TEA rate for the male and female adult population across the innovation-driven economies. Australia ranks second only to the US in terms of female entrepreneurship among the innovation-driven economies. Approximately 8.4 per cent of the adult females are actually involved in setting up a business or have currently done so.

This female TEA prevalence rate of 8.4 per cent has slightly increased from the 2010 prevalence rate of 7.8 per cent. However, these gains in female entrepreneurship over the last year are not as strong as for men. In 2010 the male TEA was on par with women at 7.8 per cent, but in 2011 has increased ahead of the female rate to 12.6 per cent. Figure 13 reveals the resulting gender gap in entrepreneurship in Australia. Although this gender gap is smaller than in most other innovation-driven economies, it is nonetheless disappointing that the gender gap has widened over the last year.

6.2.2 Age distribution of early-stage entrepreneurship

Figure 14 reveals that early-stage entrepreneurship is more common in the mid-career ages (i.e. 25 to 54). There are some notable differences between Australia and the other innovation-driven economies. Most importantly the Australian TEA rate is lowest among young adults (18–24 years), but sharply increases in the 25–34 year old age group. This suggests that young adults need more time in Australia than in other developed countries to acquire skills, resources and industry experience in order to successfully start a business. Moreover, the Australian TEA rate compared to the average of the innovation-driven economies is surprisingly constant across the middle age groups (35–44 years and 45–54 years). This is good news for Australia as it signals low age discrimination with respect to entrepreneurial pursuits.

Figure 14: Age distribution of early-stage entrepreneurs (TEA), 2011

8%

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0%18–24 years 25–34 years 35–44 years 45–54 years 55–64 years

Australia

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Figure 13: Comparison of female and male early stage entrepreneurship (TEA) rates, 2011

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7 Australia’s institutional context (entrepreneurship framework conditions)

The GEM conceptual model presented in Section 1 identifies nine institutional or framework conditions, such as education and cultural support, which in turn impact the quantity and quality of entrepreneurial activity in each country. In order to assess these frame conditions each GEM national team interviewed four experts for each topic. Please note that the following analysis is based on a small and non-random sample. Therefore, the results are not representative and must be interpreted with care.

Figure 15 shows spider graphs on these conditions. The left side of Figure 15 contains ratings on a) finance and entrepreneurship, b) general entrepreneurship policies, c) national regulation policies, d) government programs for entrepreneurship, e) entrepreneurship education in primary and secondary school as well as f) post-school entrepreneurship education. At the right side of Figure 15 one can find ratings regarding g) R&D transfer, h) professional and commercial support for entrepreneurship, i) internal market dynamics (the level of change in markets from year to year), j) internal market openness (the extent to which new firms are free to enter existing markets), k) access to physical infrastructure, and l) cultural support for entrepreneurship.

Compared with other innovation-driven economies, Australia scores high in entrepreneurship education, cultural support for entrepreneurship and internal market openness.

Figure 15: Expert ratings on entrepreneurship framework conditions, 2011

Finance and entrepreneurship

Entrepreneurship

policies general

Entrepreneurship

education:

primary/secondary

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21

8 Special topic: entrepreneurial employee activity

The GEM consortium selected entrepreneurial employee activity (EEA) as special topic for 20119. This choice acknowledges the fact that entrepreneurial activity is not restricted to new firms but can also take place in already established firms and organisations. Within these established organisations GEM identified employees who played a leading role in the creation of new business activities in their firms. This includes a broad range of activities such as developing or launching new goods or services or setting up a new business unit, a new establishment or subsidiary for their main employer.

Figure 16 shows the percentage of the adult population engaged in entrepreneurial activities as employees. When compared with other developed economies,

9 For a detailed account of this special topic see the GEM 2011 Global Technical Report at ww.gemconsortium.org

Australia ranks similarly to the US towards the top of the distribution, but well behind the levels of Sweden, Denmark, Belgium and Finland.

What is even more revealing is a joint comparison of entrepreneurial activity in established organisations (EEA rate) and new firms (TEA rate) as displayed in Figure 17. This figure illustrates that the four European countries that have the highest EEA rates, also have TEA rates well below average. Australia together with the US and the Netherlands are the only three economies with above average values in both EEA rate and TEA rate. This paints a healthy picture of the dynamic and diverse nature of entrepreneurial activity within the Australian economy.

Figure 16: Employee entrepreneurial activity (EEA), 2011

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Note: Vertical bars mark the 95 per cent confidence interval of EEA, the horizontal line marks the mean of EEA.Source: Adapted with minor changes from GEM 2011 Global Report.

22

Figure 17: Employee entrepreneurial activity (EEA) and total early-stage entrepreneurial activity (TEA) in innovation-driven economies, 2011

11%

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Average TEA=6.9%

Average EEA=4.6%

1%Greece

Taiwan

KoreaSingapore

PortugalUnited Arab EmiratesJapan

Czech RepublicSwitzerland

Germany

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Spain

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Ireland AustraliaUnited States

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Total early-stage entrepreneurial activity in % of adult population

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Source: GEM 2011 Adult Population Survey.

23

9 Conclusions and policy implicationsThis report paints a positive picture of entrepreneurial conditions and activity in Australia. With 10.5 per cent of the adult population involved in setting up a new business or owning a newly founded business (TEA rate) in 2011, Australia ranks second to the United States among the developed economies. Compared with 2010 the TEA rate has increased by 2.7 percentage points.

The findings also indicate that it is not only independent entrepreneurship that is thriving in Australia. The rate of EEA – the number of employees leading innovative efforts for their employers – was also relatively high. Australia together with the USA and the Netherlands are the only three developed economies with above average values in both independent entrepreneurship (TEA rate) and corporate entrepreneurship (EEA rate).

We also identify that a high level of inclusiveness of entrepreneurship exists in Australia suggesting that the Australian environment is conducive to encouraging and allowing potential entrepreneurs to ‘have a go’. Supporting this inclusiveness is the strong level of female entrepreneurship in Australia, and strong participation across all age groups. This level of female entrepreneurship is second only to the USA amongst innovation-driven economies. Furthermore the gender gap between males and females is also relatively small. However, it should be noted that in 2011 we did see an increase in the male-female gender gap in entrepreneurial participation compared with 2010.

The only real area where Australian entrepreneurship appears to lag behind other developed nations is in regard to the level of international opportunities being pursued. Although this is undoubtedly due in part to our geographic isolation from international markets, it remains an open question as to why.

What drives this high quantity and quality of entrepreneurship in Australia? The GEM findings suggest that it is a combination of both business opportunities and entrepreneurial skills. Approximately 50 per cent of the Australian population identify opportunities for a start-up venture and believe that they have the necessary skills to start a business. In fact, 12 per cent of our respondents express the intention to start a business within the next three years. These numbers are all well above average when compared to the other developed economies.

The ‘visibility’ of entrepreneurship also appears to be positive in Australia and is likely to serve as a catalyst for the strong rates of entrepreneurial activity reported. A large majority (70 per cent) of the Australian population reported high media attention for things relating to entrepreneurship, which serves to provide successful role models for prospective entrepreneurs.

The findings in this report certainly add to the evidence that suggests that Australia, by comparison to many other parts of the world, has weathered the GFC reasonably well and that entrepreneurship has continued to flourish. Budding entrepreneurs can certainly continue to look favourably upon setting up new business in Australia.

24

In interpreting the findings of this report, it is important that we acknowledge that most start-ups are of a modest nature in terms of overall growth expectations and innovativeness. The typical new firm starts small and remains small. Nonetheless, while the impact of a single new firm might be small, collectively they are crucial for the growth and development of our economy. Furthermore, the greater the overall pool of start-ups, the larger the number of high-potential start-ups. It is these high-potential start-ups that arguably have the greatest impact on the economy. To support this we are pleased to see that the indicators of high-potential entrepreneurship in Australia are positive. These indicators including expected employment growth, innovativeness and opportunity versus necessity motivations of new businesses in Australia, all compared positively with other developed economies.

The strong level of entrepreneurial intention indicates that the future prospects for entrepreneurship in Australia remain strong. It is vital to ensure that many of these perceived entrepreneurial opportunities and capabilities can be translated into successful new ventures. This presents policy makers, support agencies and educators with opportunities for providing skill and knowledge development that is specifically directed towards new venture start-ups.

The increasing gap between male and female entrepreneurship TEA levels presents some concern and is an area that needs further investigation. We need to ensure

that the institutional environment in Australia continues to support and encourage female entrepreneurship, in order to futher increase gender balance.

We also need to better understand why the pursuance of international opportunities and international intentions by Australian entrepreneurs lags behind other economies. Given the greater focus on globalisation and reduction of trade barriers, improvement in the international orientation of Australia’s entrepreneurs may be possible.

While the GEM report paints a healthy picture of a vibrant new business sector in Australia, it also highlights that approximately one third (31 per cent) of all businesses discontinue. While this percentage is similar to other developed economies, and many of these business exits are positive, nonetheless some of these discontinuations do represent business that have failed. Therefore, potential opportunity exists to educate prospective entrepreneurs about the pitfalls and ‘dark side’ of entrepreneurship, so they are better equipped to deal with such events. Learning from, and dealing with, failure is something that may deserve more attention.

Notwithstanding the positive picture this report paints in respect of the health of entrepreneurship in Australia, we should not rest on our laurels. Given that the global economic outlook remains flat and somewhat fragile, it is important to ensure that we maintain a focus on appropriate support mechanisms and policy. Policy makers, support organisations and educators all need to continuously work on the development of Australia’s entrepreneurial activity. It is also important that government takes into account potential negative (and positive) side effects on entrepreneurial activities of broader policies that may not be directly intended to impact entrepreneurship.

Furthermore it is also important for all stakeholders to broadly consider the diversity of entrepreneurial activities as they transcend gender, age, industries, and through founders of new firms as well as by employees of existing organisations. Thinking beyond one-size-fits-all solutions is likely to contribute positively to the continued growth and development of entrepreneurial activity in Australia.

With 10.5 per cent of the adult population engaged in new business start-ups, entrepreneurial activities represent an important and vibrant part of our economy. Notwithstanding the need to foster and support high-end science- and technology-led innovation, policy makers, support organisations and educators also need to ensure that we continue to proactively support and encourage these more grass-root endeavours.

CRICOS No.00213J © QUT 2012 Produced by QUT Publications 18861

The Australian Centre for Entrepreneurship ResearchQueensland University of TechnologyPhone +61 7 3138 2035Email [email protected] 7, Z Block, Gardens Point campus2 George Street, Brisbane Qld Australia 4001GPO Box 2434

www.bus.qut.edu.au/research/ace

Government Business

Research & Knowledge

This report was prepared by

Associate Professor Paul Steffens | Dr Michael Stuetzer | Professor Per Davidsson | Neil James

The Australian Centre for Entrepreneurship Research (ACE) aims to be the hub for research knowledge in entrepreneurship, innovation and small business studies.

We aim to be the national leader and an international top player in conducting cutting edge scholarly research on entrepreneurship. We also aim to be a primary link between research and practice in this area through building relationships with business, media and government throughout Australia.


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