Is Russia an Entrepreneurial Society?

Ruta Aidis, PhDSenior Fellow,

Center for Entrepreneurship and Public PolicyGeorge Mason University

Founder and CEOACG Inc.

FOI Seminar - R. Aidis (Stockholm 3-20-14)

• In the last 10 years, Russia has imprisoned nearly 3 million entrepreneurs

• Currently 14% of Russia’s prison population, 100,000 prisoners are convicted for business-

related activities

FOI Seminar - R. Aidis (Stockholm 3-20-14)

And more productive, market expanding entrepreneurs

Innovation driven economies - less necessity driven entrepreneurs

FOI Seminar - R. Aidis (Stockholm 3-20-14)

Outline• Formation of an entrepreneurial society

• Entrepreneurship development in Russia– Initiatives & Improvements

• Analysis– The GEDI index– The Gender-GEDI index– Ecosystem

• Specific Strategies

• 5 Challenges

• Concluding Remarks

FOI Seminar - R. Aidis (Stockholm 3-20-14)

Formation of an Entrepreneurial Society

Individuals Institutions

Societal norms and valuesEducationCharacteristics

Legal frameworkRegulationsRule of Law

FOI Seminar - R. Aidis (Stockholm 3-20-14)

Entrepreneurial Society

PROs• Social stability • Job creation• Democratization• Diversity• Increasing productivity • Employs skilled labor• Counters Russia’s resource

addiction

CONs• Challenges the status quo • Promotes disruptive activity

through innovation

FOI Seminar - R. Aidis (Stockholm 3-20-14)

Initiatives, improvements for SME development

• Agency for Strategic Initiatives (2011) • Government backed startup financing ($200 million)• World Bank’s Ease of Doing Business Index – climbed

19 places (92nd out of 189 countries) BRIC country leader

• Global Entrepreneurship Conference (GEC), Moscow, March 2014

FOI Seminar - R. Aidis (Stockholm 3-20-14)

GEDI Analysis 2013 Russia –Sweden-USA

1) Opportunity Perception2) Startup Skills

3) Nonfear of Failure

4) Networking

5) Cultural Support

6) Opportunity Startup

7) Tech Sector8) Quality of Human Resources

9) Competition

10) Product Innovation

11) Process Innovation

12) High Growth

13) Internationalization

14) Risk Capital

0

0.5

1

Russia #69Sweden #2USA #1

FOI Seminar - R. Aidis (Stockholm 3-20-14)

GEDI Analysis 2013BRIC countries

1) Opportunity Perception2) Startup Skills

3) Nonfear of Failure

4) Networking

5) Cultural Support

6) Opportunity Startup

7) Tech Sector8) Quality of Human Resources

9) Competition

10) Product Innovation

11) Process Innovation

12) High Growth

13) Internationalization

14) Risk Capital

0

0.5

1

Russia #69India #89Brazil #72China #59

FOI Seminar - R. Aidis (Stockholm 3-20-14)

Gender-GEDI Analysis 2013BRIC countries

1)Opportunity Perception2)Startup Skills

3)Willingness and Risk

4)Networking

5)Cultural Support

6)Opportunity Startup

7)Technology Sector8) Quality of Human Resources9) Competition

10) Voice and Agency

11) Product Innovation

12) Process Innovation

13) High Growth

14) Internationalization

15) External Financing

0

0.5

1

China #8Russia #10Brazil #14India #16

FOI Seminar - R. Aidis (Stockholm 3-20-14)

Moscow and other high tech hubscompared

Low levels of financing, low business growth but high levels of new technology use

FOI Seminar - R. Aidis (Stockholm 3-20-14)

Specific Strategies

• 3 startups at a time to mitigate risk instead of 100% focus on one startup

• Huge consumer market and imitative business opportunities abound (ex. Darberry, Yandex)

FOI Seminar - R. Aidis (Stockholm 3-20-14)

1) Challenge: Corruption

We couldn’t start a project in the pharmaceutical fieldBecause we refused to bribe some people…Yoanna Gouchtchina - mobile tech entrepreneur, founder ZeeRabbit

FOI Seminar - R. Aidis (Stockholm 3-20-14)

2) Challenge: Business Growth

• the difficulty of expanding businesses because of administrative barriers along the way…

• Financing is very limited especially VC & IPOs

• Weak Rule of Law

As a result, many businesseschoose to stay under the radar

FOI Seminar - R. Aidis (Stockholm 3-20-14)

3) Challenge: Financing

• 59% of local entrepreneurs surveyed say that it is difficult to access funding in Russia (E&Y, 2013)

• Russia’s banking system not a viable funding source (IMF)

FOI Seminar - R. Aidis (Stockholm 3-20-14)

4) Challenge: Education

• Education is probably the weakest area of the Russian entrepreneurship ecosystem. We need more programs and higher quality. In particular, we badly need world-class traininig at MBA level – K. Varlamov, software developer

• 48% respondents agree that their school education helped them to develop a sense of initiative and a sort of entrepreneurial attitude (Eurobarometer 2012)

FOI Seminar - R. Aidis (Stockholm 3-20-14)

5) Challenge: Civil Society development& entrepreneurs that give back…

World Bank’s Governance Indicators 1998 – 2004 - 2012

Declining Voice & AccountabilityGovernment EffectivenessRegulatory QualityControl of Corruption

Improving Political StabilityRule of Law

FOI Seminar - R. Aidis (Stockholm 3-20-14)

Concluding Remarks

Opportunities• Entrepreneurial environment has improved tremendously• Startup culture is being fostered• Large consumer market

Challenges• Fostering Business Growth, Education & Financing • Civil Society & Corruption• Fostering a productive entrepreneurship culture that gives

back….