Throughout Southeast Asia, attempts by governments to promote the creation of entrepreneurs have almost unquestionably been regarded as a policy instrument for promoting economic growth. But reality doesn’t support the image. Creating new entrepreneurs may actually be dampening economic growth, a far sight from the creative economies many governments aspire to develop.
The data in most developing Southeast Asian countries just doesn't seem to support this. The truth of the matter may be very different. While lightning strikes people figuratively about as often as it strikes literally, entrepreneurship can be more aptly described as a narrative about survival and subsistence than growth and glory. Are Asian policy-makers fooled by the hype that entrepreneur development creates economic growth?
Entrepreneurship: Open a Kedai Kopi
On the ground across Southeast Asia, very little innovation can actually be seen. The majority of new SMEs do not create any new innovation and as a consequence do not contribute to economic growth. The Global Entrepreneurship Monitor (GEM), a body founded by Babson College and the London Business School, has found that the majority of new enterprise start-ups occur within the service and retail industries.
It appears that very few people actually formally scan the environment for opportunities. If people did, they would not start up in industries with high competition and low profit margins, as the majority do. In fact most people have a natural inclination to imitate others, employing no innovation whatsoever – witness for instance entire streets made up of shops selling exactly the same things side by side, an odd phenomenon in Asian cities. Witness any beach in Asia where an entrepreneur opens a string of tourist huts, only to see a half-dozen just like it sprout up, driving down the price for beach goers and cluttering the landscape.
The Global Entrepreneurship Monitor Thailand Executive Report indicates that most such ventures are small and focus on the consumer service sector in retailing, restaurants, and personal services, such as health and beauty services. As with the rest of the region, these businesses are the prime source of income of most entrepreneurs and operated for the purpose of earning a living. Local entrepreneurs select an activity that is very locally oriented, suggesting that they are opportunistic in the limited sense of the word. There is little, if any value created.
Few Rocket Scientists
The reality is that most new businesses employ existing technologies and create no new technologies at all. Although so much entrepreneurship literature focuses on high-tech start-ups, these types of firms are only a very small percentage of new firm start-ups.
Entrepreneurship creates less employment than many people think. From data provided by the Global Entrepreneurship Monitor 2011 Global Report it can be seen that less than 2 percent of firms in most countries expect to provide more than 20 jobs, about the same percentage 5–19 jobs, with the overwhelming majority of firms expecting to employ between 0–4 people. This is strongly supported by SME data in Malaysia where almost 80 percent of firms in the country are self employed micro-enterprises, employing no one outside the family. An additional 19 percent of existing enterprises employ less than 4 persons per enterprise, indicating the SMEs actually contribute little to the growth in employment.
According to another piece of research most entrepreneur incomes are lower than what they would earn working for someone else, with less benefits, and longer hours of work. This is logical given that most entrepreneurial ventures enter into highly fragmented, localized markets, with no source of competitive advantage.
Not only is the average entrepreneur earning less than his or her salaried counterparts, income is spasmodic, varying from day to day, week to week, month to month, and year to year. There is a good chance that a person and his or her family will drop down into a lower socioeconomic group during their tenure as an entrepreneur. In the region many owner operator firms are seen as part of the marginal or informal economy.
There is also little chance that an entrepreneur will be able to sell his or her business and make any substantial capital gain. Therefore many Southeast Asian countries over the next few years will face the problem of how to support elderly populations with little means to survive. On the whole, starting a business will make a person and their family relatively worse off than if they were working for someone else.