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The Australian Centre for Entrepreneurship Research

GLOBAL ENTREPRENEURSHIP MONITOR:

GEM AUSTRALIA – 2014 NATIONAL REPORT

Business School Australian Centre for Entrepreneurship Research

GLOBAL ENTREPRENEURSHIP MONITORNational Entrepreneurial Assessment for Australia


About GEMThe 2014 Global Entrepreneurship Monitor (GEM) study

• GEM is the world’s largest study of entrepreneurship.

• In 2014, GEM was conducted in 70 economies representing 90% of the world’s Gross Domestic Product (GDP) and 72% of the world’s population.

• GEM interviewed over 206,000 adults globally, including 2,177 in Australia.

• GEM is different from other studies in that

by surveying the adult population it identifies entrepreneurs at the very earliest stages of new business creation.

• GEM measures annually the levels and characteristics of entrepreneurial activity, social attitudes, aspirations and framework conditions for entrepreneurship in each economy.

• The GEM study has been conducted annually since 1999 and has collected data from across 100 countries with over 2.2 million observations.

Key FindingsOverall the GEM data provide a rather positive picture of the entrepreneurial activity and climate in Australia:

• It was estimated that 13.1% of the Australian adult population (18–64) were actively engaged in starting and running new businesses in 2014. This equates to 2.3 million early-stage entrepreneurs.

• With total entrepreneurial activity (TEA) of 13.1%, Australia’s level of entrepreneurial activity is amongst the highest of all developed economies,1 almost identical to that of the USA (13.8%) and Canada (13.0%).

• Similar to most other developed economies, this level of entrepreneurial activity indicates a full recovery from a post-global financial crisis slump. GEM data suggest that Australia’s entrepreneurship downturn was less severe and recovered more quickly than the USA and European economies.

• Informal investment is strong in Australia with the number of business angels at 5.1% of the population. This equates to about 0.9 million informal investors financing entrepreneurial ventures in Australia. This level is a little behind the USA at 6.2% but well above the GEM average for developed nations of 3.3%.

• Female TEA is comparatively high, at 10.3% it is third amongst developed economies behind only Trinidad and Tobago (13.2%) and the USA (11.2%). Of the 1.9 million Australians engaged in starting new businesses, 39.3% or 750,000 were women.

• Australia also ranks third amongst developed economies for employee entrepreneurial activity (EEA) in established firms, with an estimated 8.4% of the adult population engaged in developing or launching new products, a new business unit or subsidiary for their employer. This equates to about 1.5 million Australians involved in EEA. Australia’s EEA of 8.4% is well above countries like the USA (6.5%) and Canada (4.8%), but it is substantially lower than Qatar (11.5%) and Denmark (11.4%).

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

1 By developed economies (or countries) we refer to innovation-driven economies (rather than factor-driven or efficiency-driven) according to the World Economic Forum Global Competitiveness Index Report’s classification for economic development levels.

– Some 3.8% of adults or 553,000 new businesses expect to create at least six new jobs in the next five years. Approximately 1.5% of adults or 222,000 businesses expect to create 20 or more new jobs in the next five years. This compares favourably to the developed economies’ averages (2.4% and 1.0% respectively) or benchmarks like the UK (2.6% and 1.3% respectively). However, Australia’s job creation expectations fall a little behind those of the USA (5.4% 6+ jobs and 2.9% 20+ jobs), especially for the most ambitious new ventures.

– Similarly, the prevalence of innovative start-ups is relatively high in Australia compared with the UK and other innovation-driven nations. In Australia, 5.7% of adults report they are starting businesses selling products or services that no or few other businesses sell, while 3.2% report selling a product or service that is new to some or all customers. This compares favorably to the developed economies’ averages (3.8% and 2.2% respectively) or benchmarks like the UK (3.6% and 1.6% respectively). However, Australia’s prevalence of innovative start-ups falls a little behind those of the USA (6.8% new product and 4.3% new market).

– Similar to other developed economies the vast majority of new ventures are based on the desire to take advantage of perceived opportunities, with only 17.6% of new ventures in Australia started through necessity.

• Australia was one of only five developed countries, together with the USA, UK, Netherlands and Qatar, that ranked above average for both business start-ups and EEA.

• Perceived opportunities and capabilities for new business start-ups remain strong in Australia. Some 46% of Australians perceive that there are good opportunities to start a business and about 47% believe they possess the skills to do so. This is somewhat above the average for developed economies (39% and 42% respectively), but slightly below countries such as the USA (51% and 53% respectively).

• Some 53% of Australians believe that good opportunities exist to establish new ventures, and about 67% feel that successful entrepreneurs experience a high status. While these levels are similar on average to other developed economies they fall below countries like the USA (65% and 77% respectively).

• Despite these positive features of Australia’s entrepreneurship profile, several aspects of the 2014 GEM findings raise particular concerns:

– Australia has a relatively low number of youth entrepreneurs compared to some other countries.

Compared with 13.1% for all age groups, only approximately 8.7% of 18–24 year old Australians are starting new businesses. While all countries show lower entrepreneurial participation for this age group, Australia falls well behind leading nations such as the USA (13.5%), Canada (12.0%) and Qatar (15.2%) in this respect.

– While female participation in entrepreneurship is comparatively high and ranked fourth across developed economies, the Female TEA of 10.3% is far less than the Male TEA of 16.0%. This discrepancy is high, in light of countries such as Switzerland that has equal male and female entrepreneurial participation (albeit at lower levels than Australia).

– A further concerning feature of Australia’s profile in 2014 is the strong rise in necessity-driven entrepreneurship, or individuals forced into entrepreneurship because they have no better opportunities for work or other sources of income. Although still relatively low in absolute terms at 2.3% of the adult population, this represents a 47% increase in the prevalence of necessity-driven entrepreneurship since Australia last participated in GEM in 2011. It is well above the average prevalence across innovation economies of 1.3%.

– Fear of failure in Australia remains slightly above the average of developed economies. Some 39.2% of Australians who report good opportunities to start a business also reported fear of failure would prevent them from doing so. This is a little above the advanced economies average of 37.8% and well above countries like the USA (29.7%) or Trinidad and Tobago (16.8%).

– Entrepreneurial intentions, those that expect to start a business within the next three years, have dropped from 12% of the adult population in 2011 to 10% in 2014. This trend goes against the average of developed economies where intentions have increased from 10% to 12% over the same period.

– Whilst the rate of business discontinuation is at a similar level to other developed economies, further research from the Comprehensive Australian Study of Entrepreneurial Emergence (CAUSEE) conducted by the Australian Centre for Entrepreneurship Research (ACE) at QUT indicates that disastrous failures are minimal.

– International orientation is below average for Australian early-stage entrepreneurs, most likely due to the geographic distance to international markets. About 4% of early-stage Australian entrepreneurs expect to have over 75% of their customers come from international markets, compared to 8.8% for other developed economies.

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Contents1 Introduction and Background 3

1.1 The GEM Research Approach 4

2 Global Snapshot of Entrepreneurship 7

2.1 Entrepreneurship and Stage of Economic Development 8

3 Entrepreneurship Trends through Economic Cycles 10

4 Australia’s Level of Entrepreneurial Activity: Phases 13

4.1 Total Early-Stage Entrepreneurial Activity 13

4.2 Established Business Ownership and Discontinuance 16

4.3 Informal Investment 16

4.4 Potential Entrepreneurs 17

4.4.1 Intentions, Abilities, and Beliefs 18

4.4.2 Social Perceptions 19

5 Entrepreneurial Employee Activity 20

6 Indicators of the Impact of Entrepreneurial Activity 22

6.1 Job Growth Expectations 22

6.2 Innovativeness 23

6.3 Motivation 24

6.4 Internationalisation 25

7 Australia’s Entrepreneurship Profile 26

7.1 Industry Sector 26

7.2 Inclusiveness 26

7.2.1 Women’s Participation in Entrepreneurship 27

7.2.2 Age Distribution of Early-Stage Entrepreneurship 28

8 Australia’s Institutional Context (Entrepreneurship Framework Conditions) 29

9 Special Topic: Youth Entrepreneurship 31

10 G20 Youth Entrepreneurship Alliance Summit 2014 33

10 Conclusions and Policy Implications 35

Table of FiguresFigure 1: The institutional context and its

relationship to entrepreneurship 4

Figure 2: The revised GEM conceptual model 5

Figure 3: The entrepreneurship process and GEM operational definitions 5

Figure 4: Total early-stage entrepreneurial activity (TEA) in 70 participating countries, 2014 8

Figure 5: Percentage of necessity-driven vs. improvement-driven entrepreneurship by level of economic development 9

Figure 6: Early-stage entrepreneurial activity (TEA) 2006–2014 10

Figure 7: Opportunity-driven motive total early-stage entrepreneurial activity (TEA) 2006–2014 11

Figure 8: Necessity-driven motive total early-stage entrepreneurial activity (TEA) 2006–2014 12

Figure 9: Total early-stage entrepreneurial activity (TEA) in 29 innovation-driven economies, 2014 14

Figure 10: Different phases of entrepreneurial activity 15

Figure 11: Prevalence and average amount of informal investment, 2014 16

Figure 12: Entrepreneurial perceptions and intentions, 2014 18

Figure 13: Entrepreneurial societal attitudes, 2014 19

Figure 14: Employee entrepreneurial activity (EEA), 2014 20

Figure 15: Employee entrepreneurial activity (EEA) and Total early-stage entrepreneurial activity (TEA) in innovation-driven economies, 2014 21

Figure 16: Growth expectations of early-stage entrepreneurs, 2014 22

Figure 17: Innovative early-stage entrepreneurial activity, 2014 23

Figure 18: Motives of early-stage entrepreneurs, 2014 24

Figure 19: Percentage of early-stage entrepreneurs (TEA) by international orientation, 2014 25

Figure 20: Sector distribution of total early-stage entrepreneurial activity (TEA), 2014 26

Figure 21: Comparison of female and male early-stage entrepreneurship (TEA) rates, 2014 27

Figure 22: Age distribution of early-stage entrepreneurs (TEA), 2014 28

Figure 23: Expert ratings on entrepreneurship framework conditions, 2014 29

Figure 24: Impact of School-based Education on Youth Entrepreneurial Participation 31

Figure 25: Level of School-based Education on Youth Entrepreneurial Participation by Age 32

Table of TablesTable 1: Entrepreneurial activity across the

entrepreneurial process 13

Table 2: Entrepreneurial intentions, abilities, beliefs and perceptions across innovation-driven economies 17

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1 Introduction and BackgroundMost policymakers and academics agree that entrepreneurship is critical to the development and wellbeing 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 2014, the Global Entrepreneurship Monitor (GEM) conducted its 15th annual survey of the rate and profile of entrepreneurial activity around the globe. GEM interviewed over 206,000 adults aged 18–64 in 70 economies, spanning diverse geographies and a range of development levels. The Australian Centre for Entrepreneurship Research (ACE) participated as the Australian GEM partner, surveying 2,177 Australian adults.

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.

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1.1 The GEM Research Approach2

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 wellbeing of its people.3 These conditions have been adopted from the World Economic Forum’s (WEF)

2 Adapted From: Singer, Amorós, and Moska (2015). Global Entrepreneurship Monitor (GEM) 2014 Annual Global Report. London: Global Entrepreneurship Research Association.

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

Global Competitiveness Report. It is important to note that, while they are framework conditions that impact economic activity more generally, 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 (EFCs) 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 they can represent conditions that entrepreneurs must navigate and levers that policymakers can address.

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 adult population surveys (APS)

From GEM adult population

surveys (APS)

From GEM national expert surveys (NES)

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Using the findings of GEM surveys over the years, this initial conceptual framework evolved into the GEM conceptual framework shown in Figure 1. A major revision of this GEM conceptual framework was to focus on better understanding the “Entrepreneurship Profile”, as shown in Figure 2.

Since the GEM survey’s early beginnings, the understood assumption of mutual relationships among attitudes, aspirations and activities was in-built in the conceptual framework, without spelling out the exact nature of these relationships. In the revised GEM conceptual framework (shown in Figure 2), these assumptions have been explicated to better investigate and test the characteristics of the assumed relationships between social values, personal attributes and various forms of entrepreneurial activity. In all conceptual frameworks, basic assumptions have remained unchanged:

• Entrepreneurial activity is not a heroic act of an individual, regardless of the environment in which the activity is performed.

• Entrepreneurial activity is a result of the interaction of an individual’s perception of an opportunity and capacity (motivation and skills) to act upon this AND the distinct conditions of the respective environment in which the individual is located.

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 3 illustrates the GEM measures across phases of entrepreneurial activity, with an added emphasis on profile factors.

Figure 3: The entrepreneurship process and GEM operational definitions

Early-stage Entrepreneurship Profile

Socio-demographics• Sex• Age

Industry• Sector

Impact• Business growth• Innovation• Internationalization

Total Early-Stage Entrepreneurial Activity (TEA)Potential Entrepreneur:Opportunities,

Knowledge and Skills

Nascent Entrepreneur:Involved in Setting Up a Business (0-3 months)

Owner-Manager of a New Business

(up to 3.5 years old)

Owner-Manager of an Established Business

(more than 3.5 years old)

Discontinuation of Business

Conception Firm Birth Persistence

Source: Adapted with minor changes from GEM 2014 Global Report

Figure 2: The revised GEM conceptual model

Social, Cultural, Political, Economic Context

Basic RequirementsEfficiency EnhancersInnovation and Business Sophistication

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Phases

GEM represents entrepreneurship as occurring in distinct phases. However, 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.

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 3 begin with potential entrepreneurs: those that 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 recognize 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 three and a half 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 benefit entrepreneurs in some other way (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 to 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 realized when entrepreneurship is seen to be inclusive; that is, when it 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 Global Snapshot of EntrepreneurshipThe GEM study 2014 saw over 194,263 adults aged 18–64 years in 70 economies interviewed. The interviewees spanned a broad range of diverse geographies and 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 939 million early-stage entrepreneurs actively engaged in starting and running new businesses in 2014. This represents an average of 13.1% of the adult population across the 70 participating countries. Of these, there was an estimated:

• 407 million (43%) female early-stage entrepreneurs

• 661 million (70%) early-stage entrepreneurs expecting to create at least one new job in the next five years

• 79 million (8%) early-stage entrepreneurs expecting to create twenty or more new jobs in the next five years

In Australia, we estimated that there were 2.9 million early-stage entrepreneurs actively engaged in starting and running new businesses in 2014. This represents 13.1% of the adult population. Of these, there was an estimated:

• 1.1 million (39%) female early-stage entrepreneurs

• 2.2 million (74%) early-stage entrepreneurs expecting to create at least one new job in the next five years

• 344,000 (11%) early-stage entrepreneurs expecting to create twenty or more new jobs in the next five years

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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 WEF Global Competitiveness Report4: 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:

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

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

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

Figure 4 compares TEA for all 70 countries that participated in the GEM study in 2014. 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.

Figure 4: Total early-stage entrepreneurial activity (TEA) in 70 participating countries, 2014

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Note: Vertical bars mark the 95% confidence interval of TEA, the horizontal line marks the mean of TEA.5 Source: Adapted with minor changes from GEM 2014 Global Report

5 To assist with interpretation we have provided some background information on confidence intervals. The TEA rate is estimated The TEA rate is estimated based on the subsample of the adult population 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% confidence interval of the TEA in Australia ranges from 11.6% to 14.7% and can be interpreted as follows. If the estimation would be repeated many times, in 95% 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 recognize 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 5 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 5: Percentage of necessity-driven vs. improvement-driven entrepreneurship by level of economic development

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Necessity-driven (% of TEA)

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Source: GEM 2104 Global Report

Innovation-driven economies such as the UK and the USA 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 Economic CyclesTo examine the impact of economic cycles on entrepreneurship rates we examined trends over the period 2006 to 2014. Figure 6 illustrates the trends in overall TEA for Australia,6 and counterpart innovation-driven economies from 2006 to 2014. The innovation average is calculated for innovation-driven countries that have regularly participated in GEM over this period (six or more of the nine years7) and are dominated by European nations.

It is clear that entrepreneurship rates vary over time differently in different parts of the world. These changes are largely driven by changing economic conditions. In the years that data are available, it can be seen that Australia follows similar trends to the USA. The USA

6 ACE joined the GEM consortium as the Australian partner in 2010. Australia did not participate in GEM over the period 2007 to 2009. Australian data are only available for 2006 (data collected by Swinburne University of Technology), 2010 and 2011, and now 2014.

7 Specifically the countries included Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Israel, Italy, Japan, Korea (South), Netherlands, Norway, Portugal, Slovenia, Spain, Sweden, Switzerland, the UK and USA.

had a sharp drop in TEA in 2009 and 2010. This clearly reflects the effects of the global financial crisis (GFC) at this time8. By 2011, however, entrepreneurial rates in the USA had recovered. Australia exhibits a similar trend. Although it seems that the GFC had a substantial impact on new business entry, we know from the CAUSEE research project9 that the GFC had little effect on those already engaged in early-stage entrepreneurial activity.

The trend in TEA across all innovation-driven countries also shows a decline in 2009 and 2010, with recovery in 2011. However across all these nations the depth of the decline was nowhere as severe as in the USA.

8 GEM data are 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.

9 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.

Figure 6: Early-stage entrepreneurial activity (TEA) 2006–2014

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To provide further insight into the variations in entrepreneurial activities with changes in economic conditions, we investigated trends in TEA for opportunity-driven versus necessity-driven motivated business from 2006 to 2014 (see Figures 7 and 8). 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 lead 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 opportunity-driven entrepreneurship?

Here we see trends very similar to the overall TEA rates in Figure 7. Opportunity-driven entrepreneurship dropped sharply in the USA in 2009 and 2010, but had rebounded strongly by 2011. This drop was extreme, falling to 4.8% in 2010, approximately 50% of the 2008 level of 9.5%.

Opportunity-driven TEA showed a similar trend, falling in both 2009 and 2010 on average for all innovation-driven economies, which are dominated by European countries. However, the strength of the drop was much less severe. Opportunity-driven TEA fell by only 1.3% from 2008 to 2010, or to 75% of the 2010 levels.

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 had made a good recovery by 2011.

Figure 7: Opportunity-driven motive total early-stage entrepreneurial activity (TEA) 2006–2014

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The impact of the GFC for necessity-driven entrepreneurship was entirely different (see Figure 8). For the USA, prevalence of necessity-driven entrepreneurship rose dramatically in 2009 and 2010. At 2.8% of the adult population in 2010, this is 215% of the 2008 level of 1.3%. The level of necessity entrepreneurship remained relatively high in the USA through 2013, with a strong recovery in 2014 dropping back to a prevalence of 1.9%.

For the advanced innovation-driven economies there is, on average, no clear impact of the GFC. Prevalence rates of necessity-driven entrepreneurship have increased very gradually, and evenly, over the period 2008 to 2014 from 1.1% of the adult population to 1.3%.

The impact of the GFC on necessity-driven entrepreneurship in Australia is somewhat unclear due to the missing years of data. Most likely there has been a small increase post-GFC, with levels at 1.5% in 2010 and 1.6% in 2011 compared with 1.2% in 2006. However, with missing data between 2007 and 2009, it is highly speculative whether this small increase is associated directly with the GFC. However, there has been a strong increase in the prevalence of necessity-driven entrepreneurship, rising to 2.3% of the adult population in 2014. This represents a 46% increase since 2011, and is now at a higher level than the USA. This is undoubtedly a disturbing trend for Australia.

Figure 8: Necessity-driven motive total early-stage entrepreneurial activity (TEA) 2006–2014

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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, individuals who disengaged from their businesses, and informal investment by business angels.

4.1 Total Early-Stage Entrepreneurial Activity

Table 1 shows the percentage of individuals in the adult population of each economy that 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 three and a half years old (baby 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.

Table 1: Entrepreneurial activity across the entrepreneurial phases

Country 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

Australia 7.6 5.7 13.1 9.8 2.2 13.61

Austria 5.8 3.1 8.7 9.9 1.7 11.97

Belgium 2.9 2.5 5.4 3.5 1.0 16.53

Canada 7.9 5.6 13.0 9.4 2.1 15.23

Denmark 3.1 2.5 5.5 5.1 1.5 19.73

Estonia 6.3 3.5 9.4 5.7 1.3 14.36

Finland 3.4 2.3 5.6 6.6 1.2 13.33

France 3.7 1.7 5.3 2.9 0.9 18.18

Germany 3.1 2.3 5.3 5.2 1.0 11.39

Greece 4.6 3.4 7.9 12.8 2.2 13.89

Ireland 4.4 2.5 6.5 9.9 1.2 8.71

Italy 3.2 1.3 4.4 4.3 1.6 24.56

Japan 2.7 1.3 3.8 7.2 0.6 7.53

Luxembourg 4.9 2.3 7.1 3.7 1.6 24.59

Netherlands 5.2 4.5 9.5 9.6 1.3 7.95

Norway 2.8 3.0 5.7 5.4 1.5 18.07

Portugal 5.8 4.4 10.0 7.6 2.0 16.81

Puerto Rico 8.8 1.3 10.0 1.3 2.9 125.00

Qatar 11.3 5.4 16.4 3.5 3.0 34.95

Singapore 6.4 4.8 11.0 2.9 1.5 19.46

Slovakia 6.7 4.4 10.9 7.8 3.3 26.75

Slovenia 3.8 2.7 6.3 4.8 1.0 14.48

Spain 3.3 2.2 5.5 7.0 1.3 12.45

Sweden 4.9 1.9 6.7 6.5 1.6 18.99

Switzerland 3.4 3.8 7.1 9.1 0.6 4.95

Taiwan 4.4 4.1 8.5 12.2 2.3 14.02

Trinidad and Tobago 7.5 7.4 14.6 8.5 2.2 13.88

United Kingdom 6.3 4.5 10.7 6.5 1.5 14.12

United States 9.7 4.3 13.8 6.9 2.5 22.91

Average 5.3 3.4 8.5 6.7 1.7 15.65

Source: Adapted with minor changes from GEM 2014 Global Report.

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Figure 9 compares the TEA for all 29 innovation-driven economies. With 13.1% of the adult population in 2014 involved in the process of setting up a business or owning a newly founded business (TEA rate), Australia ranks fourth (behind, Qatar, Trinidad and Tobago, and

the USA) among the innovation-driven (developed) economies. Compared with 2011 the TEA rate has increased by 2.7 percentage points in Australia, which represents a 25% increase from 2011 levels.

Figure 9: Total early-stage entrepreneurial activity (TEA) in 29 innovation-driven economies, 2014

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Figure 10 compares Australia with the USA and UK more fully, along with factor, efficiency and innovation-driven economies in regards to nascent, baby business, established business, and discontinuance rates.

We see that Australia is behind in nascent new entry (7.6%) when compared to the USA (9.6%). However, the 7.6% nascent prevalence rate is higher than the average reported among all innovation economies of 5.3%.

However, our baby business ownership rate, 5.6%, is ahead of the USA, which stands at 4.2%. Australia’s established business prevalence at 9.8% is also higher than the USA (6.5%). 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. This suggests that Australian nascent entrepreneurs may be more efficient at establishing a new firm during the start-up process than USA nascent entrepreneurs. In fact, in the group of innovation-driven economies, our baby business ownership rate is ranked number two behind Trinidad and Tobago, at 7.4 %.

Figure 10: Different phases of entrepreneurial activity

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Nascent = Within start-up process; Baby business = up and running business less than 3.5 years old; Established business = up and running business more than 3.5 years old; Discontinuance = business termination within last 3 years. See Section 1.1 for more information.

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4.2 Established Business Ownership and Discontinuance

Australia’s rate of established business ownership is estimated to be 9.8%, about 1.5 times higher above the international average for advanced economies of 6.7%. 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 2014 the rate of discontinued businesses in Australia was 2.2% of the adult population. As a percentage of both established and new businesses, this was 13.6%, close to the average of innovation-driven economies at about 15.7% (see Table 1). In that sense the relatively high rate of discontinuances simply reflects the healthy renewal or churn 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 (CAUSEE10) has identified that Australia has very few closures that could be considered to be disastrous.

10 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/

4.3 Informal InvestmentIn order for venturing activity to thrive there must be sufficient money available to finance new businesses. Most of the initial money comes from the founders of the businesses themselves, also known as informal investors: family, friends, neighbors, work colleagues, and strangers; some comes from lending institutions, primarily banks; and in very rare instances from formal investment by venture capitalists. GEM specifically examines funding from entrepreneurs themselves, informal investors, and venture capitalists.

The prevalence rate of informal investors among the adult population of all the GEM nations in 2014 is about 4.6% with an average investment of AU$25,000, which is illustrated in Figure 11. The prevalence rate of informal investors among the adult population in innovation-driven economies in 2014 is about 3.2% with an average investment of AU$43,500. Australia’s rate of informal investment is about 4.4%, slightly ahead of the USA at 4.3%, and considerably ahead of the UK at 1.4%. Although the rate of informal investment for Australia and the USA are on par, there are about 9.4 times more entrepreneurs than informal investors in the USA, and 2.8 times more entrepreneurs in the UK than informal investors. Conversely, there are only 3.2 times more entrepreneurs than informal investors in Australia.

Figure 11: Prevalence and average amount of informal investment, 2014

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4.4 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 an individual’s perception of abilities as well as the perception of societal attitudes towards entrepreneurship that together impact an individual’s vocational choice. Table 2 shows that the percentage of individuals in the adult population of each economy differs in terms of individual intentions, abilities, and beliefs about entrepreneurship.

Entrepreneurial intentions are defined by the percentage of individuals who expect to start a business within the next three years (those already entrepreneurially active are excluded from this measure). Perceived opportunities reflect the percentage of individuals who believe there is occasion to start a venture in the next six months in their immediate environment. Perceived

capabilities reflect the percentage of individuals who believe they have the required skills, knowledge and experience to start a new venture. The measure of fear of failure (when it comes to starting one’s own venture) only applies to those who perceive opportunities.

Likewise, social values play a key role in determining whether individuals are behaving entrepreneurially or not.11 In GEM, social values are captured through three dimensions:

• if most people consider starting a new business a desirable career choice;

• if those individuals who are successful at starting a new business enjoy a high level of status and respect in society; and

• if media attention to entrepreneurship (by promoting successful ventures) contributes or not to developing an entrepreneurial culture in a country.

11 Kwon, S. W., & Arenius, P. (2010). Nations of entrepreneurs: A social capital perspective. Journal of Business Venturing, 25(3), 315-330.

Table 2: Entrepreneurial intentions, abilities, beliefs and perceptions across innovation-driven economiesPerceived opportunities

Perceived capabilities

Fear of failure* Entrepreneurial intentions **

Entrepreneurship as a good career choice

High status to successful entrepreneurs

Media attention for entrepreneurship

Australia 45.7 46.8 39.2 10.0 53.4 67.1 72.6

Austria 44.4 48.7 34.9 8.1

Belgium 35.9 30.4 49.4 10.6 52.4 51.7 50.8

Canada 55.5 49.0 36.5 12.0 57.2 69.7 67.7

Denmark 59.7 34.9 41.0 6.9

Estonia 49.4 42.5 41.8 9.8 55.6 64.9 43.3

Finland 42.4 34.9 36.8 7.9 41.2 84.4 66.9

France 28.3 35.4 41.2 14.2 59.0 70.4 39.0

Germany 37.6 36.4 39.9 5.9 51.7 79.1 51.4

Greece 19.9 45.5 61.6 9.5 58.4 66.4 45.8

Ireland 33.4 47.2 39.3 7.2 49.4 76.9 75.7

Italy 26.6 31.3 49.1 11.4 65.1 72.1 48.3

Japan 7.3 12.2 54.5 2.5 31.0 55.8 58.7

Luxembourg 42.5 37.6 42.0 11.9 40.7 68.2 43.5

Netherlands 45.6 44.3 34.8 9.3 79.1 67.8 55.7

Norway 63.5 30.5 37.6 5.0 58.2 83.5

Portugal 22.9 46.6 38.4 15.8 62.2 62.9 69.7

Puerto Rico 25.1 48.8 24.0 12.5 18.5 51.1 72.7

Qatar 63.4 60.9 25.5 50.4 75.8 87.1 76.8

Singapore 16.7 21.4 39.4 9.4 51.7 62.9 79.1

Slovakia 23.5 54.4 36.0 15.1 45.4 58.1 52.6

Slovenia 17.2 48.6 29.0 11.4 53.4 72.3 57.6

Spain 22.6 48.1 38.0 7.1 53.9 49.0 46.3

Sweden 70.1 36.7 36.5 8.5 51.6 70.9 60.3

Switzerland 43.7 41.6 29.0 7.1 42.3 65.8 50.4

Taiwan 33.5 29.0 37.4 25.6 75.2 62.6 83.5

Trinidad & Tobago 58.6 75.2 16.8 33.9 79.5 69.5 65.6

United Kingdom 41.0 46.4 36.8 6.9 60.3 75.0 58.4

USA 50.9 53.3 29.7 12.1 64.7 76.9 75.8

Innovation-Driven Average (unweighted)

38.8 42.0 37.8 12.3 55.1 68.2 60.3

GEM Average (unweighted)

42.7 51.0 34.2 20.9 62.5 68.1 63.3

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4.4.1 Intentions, Abilities, and Beliefs

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 society.12 Figure 12 presents the percentage of those currently not engaged in early-stage entrepreneurial activity who expect to found a business in the next three years. With 10% of the non-entrepreneurial adult population expressing such an intention, Australia is slightly lower than the average of 12% for all innovation-driven economies. Importantly, while entrepreneurial intentions in Australia have fallen from 12% in 2011 to 10% in 2014, the average across innovation-driven economies has exhibited an increase from 10% to 12% over the same period.

12 See GEM 2014 Global Technical Report at www.gemconsortium.org.

Figure 12 also gives an overview of individual perceptions of opportunities, abilities, and beliefs related to entrepreneurship among the general population. Approximately 46% of Australians perceive good founding opportunities for a start-up venture and 47% believe that they have the necessary skills to start a business. Both measures are above the average of comparative innovation-driven economies including the UK, but slightly lower than the USA.

One point of concern is that 39.2% of non-entrepreneurial Australians reported perceived fear of failure as a reason that they wouldn’t start their own firm. This is almost ten percentage points higher than the USA, and five percentage points higher than the global average. However, Australia is only about 1.5 percentage points over the innovation-driven economy average.

Figure 12: Entrepreneurial perceptions and intentions, 2014

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4.4.2 Social PerceptionsApart from the perception of skills and founding opportunities, the individual perception of societal attitudes can greatly influence entrepreneurial activity. Australia ranks approximately equal to the average of innovation-driven economies in terms of social perceptions of entrepreneurship as a good career

choice, and that successful entrepreneurs attain high status in society. Yet these are somewhat below comparative countries like the USA and the UK. However, it appears that entrepreneurs in Australia receive considerably more positive media attention than the average of innovation-driven or the UK (see Figure 13).

Figure 13: Entrepreneurial societal attitudes, 2014

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5 Entrepreneurial Employee ActivityThe GEM consortium has also measured Entrepreneurial employee activity (EEA) since 2011.13 This choice acknowledges the fact that entrepreneurial activity is not restricted to new firms but can also take place in already established firms and organizations. Within these established organizations 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

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

launching new goods or services or setting up a new business unit, a new establishment or subsidiary for their main employer.

Figure 14 shows the percentage of the adult population engaged in entrepreneurial activities as employees. Australia’s prevalence of employee entrepreneurship of 8.4% places us third amongst innovation-driven economies (behind Qatar and Denmark) and is 1.3 times higher than the average for innovation-driven economies.

Figure 14: Employee entrepreneurial activity (EEA), 2014

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What is even more revealing is a joint comparison of entrepreneurial activity in established organizations (EEA rate) and new firms (TEA rate) as displayed in Figure 15. This figure illustrates that several countries that have amongst the highest EEA rates, such as Denmark and Japan, also have TEA rates well below the average.

Importantly, Australia together with Qatar, the USA, the UK and the Netherlands are the only five 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 15: Employee entrepreneurial activity (EEA) and Total early-stage entrepreneurial activity (TEA) in innovation-driven economies, 2014

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6 Indicators of the Impact of Entrepreneurial ActivityBusinesses 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 starting a new business; and

• the entrepreneur’s ambition to serve international markets.

6.1 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 firm growth.14 This measure can be interpreted as the expected direct contribution of new firms to job growth in Australia.

Figure 16 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).

Australia is generally well placed compared with other innovation-driven economies. Approximately 3.8% of

14 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.

the adult population start businesses that they expect to grow larger than five employees, 1.6 times higher than the innovation-driven economy average. Furthermore, 1.5% expect exceptionally high growth (larger than 20 employees), 1.5 times higher than the innovation-driven economy average.

Figure 16 also reveals that Australia performs more strongly than the UK, but is a little behind the USA. This is especially true for the most ambitious new ventures with 2.9% of US adults starting businesses that expect to create 20 or more jobs, compared with only 1.5% in Australia.

Figure 16: Growth expectations of early-stage entrepreneurs, 2014

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6.2 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 17 presents the rate of innovative early-stage entrepreneurial activity. With 3.2% of the adult population starting firms with innovative products that are new to some or all customers, and 5.7% stating that no or few businesses offer the same product or service, Australia is about 1.5 times higher on average on both these metrics when compared to the average for innovation-driven economies and is well ahead of the UK. However, as shown, Australia still lags behind the USA.

Figure 17: Innovative early-stage entrepreneurial activity, 2014

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

Exploring this distinction, Figure 18 shows the distribution of necessity-driven entrepreneurship and opportunity-driven 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 about 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. While this ratio is similar to other innovation-driven economies, as discussed in Section 3, necessity-driven entrepreneurship has risen sharply in Australia since 2011.

Figure 18: Motives of early-stage entrepreneurs, 2014

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6.4 InternationalizationInternationalization 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 19, just 4.01% aim at a substantial share of customers from international markets, compared with an average of 8.8% for other innovation-driven economies. Likewise the USA, with only two countries on its borders, has only 5.4% of early-stage entrepreneurs pursuing ventures with over 75% of customers outside the domestic market. Most likely the low percentage of early-stage venturing associated with substantial internationalization objectives is due to the comparatively large distances between Australia and its closest international markets. The majority of the comparative countries with high international orientations have rather small domestic markets or are European, sharing borders with other countries.

Figure 19: Percentage of early-stage entrepreneurs (TEA) by international orientation, 2014

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7 Australia’s Entrepreneurship ProfileEntrepreneurs do not form a homogeneous group, differing between each other in many respects. Therefore, a simple count of entrepreneurs does not fully describe the diverse profile of entrepreneurship and its impact on the Australian economy. This section looks at two characteristics of Australia’s entrepreneurship profile:

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

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

7.1 Industry SectorThe distribution of early-stage entrepreneurs by industry is shown in Figure 20. In general the sectorial distribution of Australian businesses is comparable with other innovation-driven economies. Most Australian new firms are consumer-oriented (37%) or business services (33%). Because Australia is rich in natural resources, new businesses in the extractive sector (6%) and the transforming sector (24%) are relatively common compared to other innovation-driven economies.

Figure 20: Sector distribution of total early-stage entrepreneurial activity (TEA), 2014

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7.2 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 sindividual characteristics such as gender and age.

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7.2.1 Women’s Participation in Entrepreneurship

Figure 21 presents the TEA rate for the male and female adult population across the innovation-driven economies. In absolute terms, Australia ranks fourth (behind Trinidad and Tobago, the USA, and Qatar) in terms of female entrepreneurship among the innovation-driven economies, which in itself is encouraging. Approximately 10.3% of adult females are actually

involved in setting up a business or have recently done so. However, we also observe a substantial gender gap where the male TEA prevalence is 16.0%. Hence female entrepreneurial participation in Australia is only 64% of that of males. Although such a gender gap is commonly observed around the globe, we also observe countries such as Switzerland, where male and female entrepreneurial participation is equal (albeit at a substantially lower level than Australia).

Figure 21: Comparison of female and male early-stage entrepreneurship (TEA) rates, 2014

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Bel

gium Ita

ly

Sw

eden

Den

mar

k

Ger

man

y

Nor

way

Fran

ce

Irela

nd

Slo

veni

a

Spa

in

Finl

and

Luxe

mbo

urg

Gre

ece

Taiw

an

Aus

tria

Sin

gapo

re

Sw

itzer

land

Net

herla

nds

Slo

vaki

a

Uni

ted

Kin

gdom

Est

onia

Por

tuga

l

Pue

rto

Ric

o

Can

ada

Aus

tral

ia

Qat

ar

Uni

ted

Sta

tes

Trin

idad

& T

obag

o

Male TEA Female TEA


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7.2.2 Age Distribution of Early-Stage Entrepreneurship

As Figure 22 reveals, early-stage entrepreneurship is more common in the mid-career ages 25–54 than either younger or older age groups. This pattern is consistent across all parts of the globe. However, one noticeable difference in Australia’s profile is the relatively low numbers of youth entrepreneurs in the 18–24 age bracket. If we compare the age distribution of TEA rates with those of the USA we see that all age groups are reasonably close except for 18–24 year olds. For this youth cohort, Australia’s prevalence rate is just 8.7%

compared with 13.5% in the USA. Comparing with the average of all innovation-driven economies, although in absolute terms Australia’s TEA rates are higher for all age groups, we see that comparatively the 18–24 age group are quite close, while other age groups are much higher. These age-related patterns are similar to 2011 GEM findings. Interestingly, the pattern of our age distribution is somewhat similar to that of the UK. These data suggest that, compared with most other developed nations, Australia’s youth take longer to pursue entrepreneurial endeavours. It remains an open question as to why this is the case.

Figure 22: Age distribution of early-stage entrepreneurs (TEA), 2014

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

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64)

Innovation–driven United Kingdom United States Australia


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8 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 framework 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 23 illustrates these conditions, which include: 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, f) post-school entrepreneurship education g) research and development (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 the average for the various framework conditions among innovation-driven economies, Australia scores highest in professional and commercial infrastructure and access.

Figure 23: Expert ratings on entrepreneurship framework conditions, 2014 (Continued on next page)

Innovation-driven United Kingdom United States Australia

Financial environment related to

entrepreneurship

Government concrete policies,

priority and support

Government programs

Entrepreneurial level of education at primary

and secondary

Entrepreneurial level of education

at vocational, professional, college

and university

Government policies bureaucracy, taxes

0

0.5

1

1.5

2.5

3.5

3

2

Ave

rage

sco

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f exp

erts

15

15

15 Experts rated the level of support for entrepreneurship of each element of the country’s framework conditions on a 1–5 scale

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Figure 23: Expert ratings on entrepreneurship framework conditions, 2014 (Continued from previous page)

R&D level of transference

Professional and commercial

infrastructure access

Internal market burdens

Physical infrastructures and

services access

Cultural, social norms and

society support

Internal market dynamics

0

0.5

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2.5

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Innovation-driven United Kingdom United States AustraliaSource: Adapted with minor changes from GEM 2014 Global Report

We thank the following people who agreed to participate as part of the National Expert Survey. Some respondents preferred to remain anonymous:

Megan Antcliff Director, Strategic Projects and Innovation, Department for Manufacturing, Innovation, Trade, Resources and Energy

Dr Peter Beven QUT Graduate School of Business; Director, Occassio Ventures

Anne-Marie Birkill Partner and Executive Director, OneVentures

Dr Steve Brodie Open Innovation Managers, UNSW Innovations

Dr Susanna Chamberlain School of Humanities, Griffith University

Bernard Curran Private Clients Partner, BDO

Paul Daly Adelaide Entrepreneurship Forum, Babelshark Consulting

Phillip Di Bella Managing Director, Di Bella Coffee

Dr Robin Fieldhouse Australian Innovation Research Centre, University of Tasmania

Stewart Gow New Ventures Australia; Resident Director, Dhanush InfoTech (Aust) Pty Ltd

David Griffin Director, Dy-Mark, RID, Griffin Financial

Colin Kinner Director, Spike Innovation

Dr Richard Lamprecht SouthernX Radiology

Malcolm McBratney Partner, McCullough Robertson

Professor Myles McGregor-Lowndes QUT Business School

Greg Nathan Franchise Relationships Institute

John Puttick QUT Council; Chairman, GBST Holdings

Paul Rigo Commercial and Operations Leader, Global Mining, GE

Robin Shea Director Service Australasia, JoyGlobal

Richard Snabel General Manager, Department of Industry and Science

Graeme Thomson CEO Avaxa

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9 Special Topic: Youth Entrepreneurship In 2014 GEM introduced a special topic focussing on youth entrepreneurship. The full report “Future Potential: A GEM perspective on youth entrepreneurship 2015” by Thomas Schøtt, Penny Kew and Maryam Cheraghi is published by GEM16.

With spiralling youth unemployment in many parts of the world, in November 2014 G20 leaders in Brisbane prioritized the encouragement of youth entrepreneurship. Importantly, new businesses are a driver of employment, with 41% of new jobs created from small or medium enterprises less than three years old. The Australian government announced a $300M package in the 2015 May budget, and state governments are also introducing targeted measures. Where does Australia currently stand?

Entrepreneurship is alive and well in Australia, but youth entrepreneurship lags leading nations. With 13.1% of the adult population involved in setting up a new business or owning a newly founded business (TEA rate – see Table 1), Australia ranks highly among the innovation-driven (developed) economies (average 8.5%) and similar to the USA (13.8%). However Figure 22 shows Australia’s youth entrepreneurship is comparatively low. While other age groups are almost identical to the USA and well above the average of other innovation-driven economies, TEA rate for Australia’s 18-24 year olds is well below the USA (8.7% vs 13.5%) although approximately equivalent to the average of innovation-driven economies.

Entrepreneurship education at school is a key driver of youth entrepreneurship. In 2014 GEM asked respondents if they had received any training in starting a business at either primary or secondary school. Figure 24 compares the percent of individuals who are entrepreneurs for those who reported receiving training at school versus those that didn’t. Here entrepreneurs include those attempting to start a business (nascent entrepreneurs), or those who own and manage their own business regardless of its age (new or established business). This is compared for 18-24 year olds and 25-34 year olds.

16 www.gemconsortium.org/report

For 18-24 year old Australians, 18.1% who received entrepreneurship education at school were entrepreneurs, compared with only 8.0% for others. For the 25-34 year olds, while more entrepreneurial in general, the differences were still pronounced – 25.4% vs 15.0% respectively.

The data provides compelling evidence that enterprise education at school matters – and it matters a lot17. This finding is corroborated by earlier evidence, albeit in Sweden, using a careful longitudinal design18. Although it is not surprising that education has an impact, the data indicates that the strength of this relationship is particularly strong.

17 Although these results could be due in part to entrepreneurial individuals self-selecting to undertake entrepreneurial education at school, we expect this impact to be minimal. Within curricula elective business studies at high school are typically designed for both corporate careers as well as business founders. Extra-curricular programs are typically selected by the teacher, not students.

18 Elert, N., Andersson, F., & Wennberg, K. (2014). The impact of entrepreneurship education in high school on long-term entrepreneurial performance. Journal of Economic Behavior & Organization. doi:10.1016/j.jebo.2014.12.020

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Figure 24: Impact of School-based Education on Youth Entrepreneurial Participation

18–24 25–34

0%

5%

10%

15%

20%

25%

30%

No Training at School Entrepreneurship Training at School

Per

cent

age

of P

opul

atio

n as

Ent

repr

eneu

rs

Like the rest of the world, levels of entrepreneurship education at school has been increasing in Australia. Figure 25 displays the percentage of Australians that reported receiving entrepreneurship education at school by age, and compares this to all countries in the GEM study. Australia’s level of entrepreneurship education and training at school shows very similar patterns to the average across other countries. This type of education has been increasing over time, with about 20% of 18-24 year olds reporting

entrepreneurship education, 15% of 25-34 year olds and just 10% of 35-64 year olds.

Business and policy advice. Early entrepreneurship education embedded into schools is critical to encourage youth entrepreneurship. Despite Australia’s generally high level of entrepreneurial participation, our youth entrepreneurship is comparatively weak. Youth entrepreneurship education and training should be maintained as a key priority.

Figure 25: Level of School-based Education on Youth Entrepreneurial Participation by Age

18–24 25–34 35–64

0%

5%

10%

15%

20%

25%

Australia GEM Global Average

Per

cent

age

of In

divi

dual

s R

ecei

ving

E

ntre

pren

euria

l Edu

catio

n at

Sch

ool

33

10 G20 Youth Entrepreneurship Alliance Summit 2014A highlight of the 2014 entrepreneurship calendar in Australia was hosting the G20 Young Entrepreneurs’ Alliance (G20 YEA) Summit. The summit attracted over 400 young entrepreneurs and leaders from all G20 countries and 14 observer nations, selected to represent the voice of the world’s future business leaders. Held in Sydney from 18th July. The event acted as a feeder event for the G20 Leaders Summit held in Brisbane in November.

The G20 YEA is a collective of leading entrepreneurship NGOs representing over 500,000 young entrepreneurs across G20 countries and the European Union. The G20 YEA members have already created an estimated 10 million jobs. G20 YEA is building on partnerships and collaboration with governmental, business and civil society stakeholders such as the OECD, ILO, UN Millennium Campaign, B20, Y20, EY, Accenture and all official G20 engagement groups. The 2014 G20 YEA Summit built upon the dialogue between young entrepreneurs that began in Italy (at the G8), and continued at the G20 YEA Summits in Canada, France, Mexico and Russia.

The 2014 G20 YEA Summit Australia was hosted by Jeremy Liddle and Aaron McNeilly from The Enterprise Network for Young Australians (www.enya.org.au). Key speakers at the summit included:

• Rt Hon Helen Clark, Administrator United Nations Development Program

• Senator the Hon Scott Ryan, Parliamentary Secretary to the Minister for Education of Australia

• Holly Ransom, Co-Chair Australian Y20

• Angel Gurria, Secretary General of OECD

• Kate Carnell AO, CEO of the Australian Chamber of Commerce

• Matt Barrie, Founder and CEO Freelancer.com

• Rod Dury, CEO Xero

GEM data illustrating low entrepreneurship participation of youth, particularly in Australia, were also presented by Associate Professor Paul Steffens from ACE at QUT. The Accenture report “The promise of digital entrepreneurship” and EY report part 2 “Avoiding a lost generation: ten key recommendations to support youth entrepreneurship across the G20”, were both co-published with the G20 YEA, providing specific recommendations and best practices to assist all G20 stakeholders.

The young entrepreneurs of the world gathered at the Sydney G20 YEA Summit to support the Australian G20 priorities on private sector led growth and greater resilience of the world economy. They called on the G20 Leaders, Finance Ministers and Central Bank Governors to focus on entrepreneurship and agree to implement policies, legislation and incentives for ecosystems that support start-ups and sustainable high-growth entrepreneurial small and medium-sized enterprises (SMEs), young entrepreneurs and enhance private sector-led growth.The G20 YEA action plan on youth employment contained specific actions that, during the 2014 G20 YEA summit, every country committed to implement in order to improve their entrepreneurship ecosystem and create more high-growth SMEs.

The recommendations made to G20 leaders were:

1. Reform the global financial system to provide Investment and access to capital

Facilitate the development of a methodology for financial institutions to provide affordable finance to SMEs, which should be accompanied by learning programs.

Develop regulations to accommodate the development of new innovative forms of financing including online cross-border platforms and networks of investors and entrepreneurs, such as crowd-sourced equity funding.

2. Education, training and business linksPromote close cooperation between the business and education sector to better link educational pathways with labour market needs and address the skills mismatch, with renewed focus on STEM (science, technology, engineering and mathematics) education.

3. Entrepreneurship cultureInstall experiential entrepreneurship education programs in all layers of the education system with a focus on gender equality, values, ethics and business morals.

34

4. Innovation and technologyImplement or expand legislation that incentivizes the commercialization of innovation and new technology. Incentivize programs that connect research, development and commercialization organizations with entrepreneurs and SMEs.

5. Regulation and strengthening tax systemsReduce regulatory and tax burdens on labor for both employers and employees as well as reduce tax and regulations for creating of new companies.

6. Trade and globalizationCreate a G20 multilateral start-up visa to improve the ability of entrepreneurs to travel and conduct business

internationally, and to increase labor mobility by allowing high and sustainable growth SMEs to hire overseas skilled labor more easily.

7. Attracting private infrastructure investmentEnsure that government procurement processes are made more open to small businesses owned by young entrepreneurs.

8. Empower development Support the United Nations (UN) and ensure there is a major goal in the UN post-2015 development agenda on youth employment and entrepreneurship, especially young women.

The summit was highly successful in influencing the G20’s recognition of the need for a special focus on youth entrepreneurship. The 2014 G20 leaders’ communique19 specifically recognized support for encouraging youth entrepreneurship. The G20 YEA aims to ensure that the ideas of young entrepreneurs adopted by G20 leaders will not remain merely a statement, and that the world will witness concrete actions taken towards their institutionalization. The 2015 G20 YEA was held in Istanbul, Turkey in September.

19 See: https://g20.org/wp-content/uploads/2014/12/brisbane_g20_leaders_summit_communique1.pdf

From Left to right: Kevin Langley, G20 YEA USA President, Holly Ransom, Y20 Australia Co-Chair, Helen Clarke, Administrator UNDP, Jeremy Liddle,

G20 YEA Australia President, Aaron McNeilly, G20 YEA Australia Sherpa

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11 Conclusions and Policy ImplicationsOverall, this report paints a positive picture of entrepreneurial conditions and activity in Australia. With 13.1% of the adult population involved in setting up a new business or owning a newly founded business (TEA rate) in 2014, Australia is tracking almost identically to the USA (13.8%) and Canada (13.0%), with only Qatar (16.4%) and Trinidad and Tobago (13.2%) having higher rates of entrepreneurship among the innovation-driven (developed) economies. Like most other developed countries, the prevalence of entrepreneurship has been increasing over recent years. Compared with 2011 the TEA rate in Australia has increased by 2.6 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. With an EEA prevalence of 8.4% of the adult population Australia is ranked fourth amongst developed economies, substantially ahead of comparative countries such as the USA and UK. Australia together with the USA, the UK, Qatar and the Netherlands are the only five developed economies with above average values in both independent entrepreneurship (TEA rate) and corporate entrepreneurship (EEA rate).

The findings also suggest that not only is the quantity of entrepreneurial activity in Australia relatively high, but also the quality is strong by world standards. Compared with the average of developed economies Australia has high levels of both innovative start-ups and high ambition business start-ups in terms of expected employees.

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 45% of the Australians population identify opportunities for a start-up venture and believe that they have the necessary skills to start a business—well above the average of other developed economies. The “visibility” and desirability of entrepreneurship also appears to be positive in Australia, comparable to and is likely to serve as a catalyst for the strong rates of entrepreneurial activity reported. A large majority (70%) of respondents reported positive media attention and a high status of entrepreneurship, which serve to provide successful role models for prospective entrepreneurs.

Despite these positive features of Australia’s entrepreneurship profile, several aspects of the 2014 GEM findings raise particular concerns.

First, youth entrepreneurship in the 18–24 age group is comparatively weak in Australia. As a simple comparison, while entrepreneurship prevalence is quite close to the USA in other age brackets, only 8.7% of 18–24 year old Australians are starting businesses compared to 13.5% in the USA. The comparatively late onset of entrepreneurship in Australia warrants further research and attention by both policymakers and educators.

Second, while Australia’s female participation in entrepreneurship is comparatively high and ranked fourth across developed economies, the Female TEA of 10.3% is far less than the Male TEA of 16.0%. This discrepancy is somewhat high, particularly in light of

36

countries such as Switzerland that has equal male and female entrepreneurial participation (albeit at lower levels than Australia). It is important that the institutional environment in Australia continues to support and encourage female entrepreneurship, and works towards decreasing gender imbalance.

Third, necessity-driven entrepreneurship (starting a business out of necessity as opposed to pursuing an opportunity) has increased since 2011. Although still comparatively rare at 2.3% of the adult population this is substantially higher than the estimated 1.6% in 2011, and is now higher than the USA and the average across developed economies. As such, this represents another indicator that employment opportunities are weaker and financial hardship is stronger than in recent years.

Fourth, while entrepreneurial intentions of non-entrepreneurs in Australia have fallen from 12% in 2011 to 10% in 2014, the average of other developed economies have exhibited growth increasing from 10% to 12% over the same period. Relatedly, fear of failure remains comparatively high in Australia, at 40%, compared with the average of other developed economies of 38% as a reason for not wanting to start a business. Hence, while entrepreneurship prevalence is currently comparatively strong in Australia the future outlook shows some signs of weakening. It is vital to ensure that many of the perceived entrepreneurial opportunities and capabilities of Australians continue to be successfully translated into new ventures. This presents policymakers, support agencies, and educators with opportunities for providing skill and knowledge development that is specifically directed towards new venture start-ups.

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

Finally, in interpreting the findings of this report, it is important that we acknowledge that most start-ups are of modest nature in terms of overall growth expectations and innovativeness. The typical new firm starts small and remains small. We stress that since GEM is a study of the population of all businesses, the numbers of high-growth start-ups captured in the study are too small to make any direct assessment of high-growth ventures in Australia. 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.

37

CRICOS No.00213J © QUT 2015 Produced by QUT Publications 21665

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

This report was prepared by

Associate Professor Paul Steffens | Dr Diana Hechavarria

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.

Government Business

Research & Knowledge


Business School Australian Centre for Entrepreneurship Research

The 2014 Australian GEM study was sponsored by:Australian Centre for Entrepreneurship ResearchQUT Business SchoolQueensland University of Technology

October 2015

The Australian GEM Team is based at the Australian Centre for Entrepreneurship Research (ACE), QUT Business School, QUT. Australia GEM Team member are:

Associate Professor Paul Steffens, Deputy Director ACE Professor Per Davidsson, Director ACE and Talbot Chair of Entrepreneurship

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