Entrepreneurship at a glance in OECD countries

The recently released OECD report Entrepreneurship at a Glance offers a wealth of 2013-2014 data on entrepreneurship trends, startup creation rates, venture capital and job creation.

Also read my earlier reviews of startup research by the National Venture Capital Association and Kaufmann Foundation

“Entrepreneurship and entrepreneurs are important sources of innovation, growth and employment,” the report begins. It is packed with tables and charts with 20 indicators of entrepreneurial performance from around 30 countries (generally mature economies).

Small is beautiful

In all surveyed countries, most business are micro-enterprises, i.e. firms with less than ten employees; between 70% and 95% of all firms in OECD are micro-enterprises. In half of OECD countries, micro-enterprises account on average for more than 90% of total enterprises, with the highest proportion in the services sector. There are also variations in the percentage of the workforce in micro-enterprises, ranging from more than 45% (Portugal, Slovenia, Italy, Greece) to less than 20% (Russian Federation, US, Switzerland), according to the report.

“Small businesses can be important drivers of growth and innovation. At the same time, larger businesses typically have competitive advantages,” the report says. Larger enterprises tend to have higher productivity levels than smaller enterprises; in the majority of countries, more than 50% of total exports are accounted for by enterprises with 250 employees or more.

Young enterprises account for between 5% and 10% of total employment, though the rates were higher in 2007. Employment creation is driven more by the establishment of new enterprises than by the growth of enterprises during their first years of operation. Overall, high-growth enterprises account for a small number of firms but a relatively high proportion of employment.

Drivers and barriers

The lack of own funds and the high perceived costs of innovating and starting up are the two key hindrances to innovation across all countries. Among OECD countries, Spain and Turkey have the highest percentages of firms that report facing hampering factors.

Policy and state support

State support for innovation varies considerably between OECD countries. For example, in the Slovak Republic, Estonia and Hungary, more than 85% of government funding for R&D goes to SMEs. But in Japan, Luxembourg, the US and Sweden, more than 80% of support goes to large firms.

In France, startup rates are being boosted by new legislation supporting auto-entrepreneurs introduced in 2009. The report defines government-financed Business Enterprise Research and Development (BERD) as grants, loans and procurement contracts; public support for innovation includes tax credits or deductions, subsided loans and loan guarantees.

Venture capital

The 2007 crisis has hampered the venture capital industry in the OECD group. In 2013, in most countries the level of venture capital investments was still below the levels of 2007.

Venture capital still represents a very small percentage of GDP in most OECD countries, usually less than 0.04%. Exceptions are Israel and the US, where the venture capital industry is more mature – it represents 0.3% and 0.2% of GDP respectively.

Europe v/s US

The impact of the 2007 economic crisis has been far more pronounced in Europe than the US, according to the report. Despite tentative signs of recovery in 2013, total venture capital investments in Europe remain at around half their pre-crisis peak; in the US, investments surpassed their pre-crisis peak only in 2013.

In both Europe and the US, seed and startup stage financing were stronger than later-stage financing. In Europe, seed and startup stage financing in 2013 was around 30% below its pre-crisis peak compared to about 70% for later-stage. In the US, seed and start-up stage financing was around 50% higher than its pre-crisis peak, according to data cited in the report.

Innovation

“Innovation and entrepreneurship are closely related. The creation of new products and processes, including organisational and marketing processes, define innovation,” the report explains.

In most OECD countries, between 50% to 80% of large enterprises cooperate with others for product and/or process innovation. These percentages are twice as high as those of firms with less than 250 employees (between 20% and 40% of them cooperate).

The report classifies innovation partnership types as follows: other enterprises in the domain; suppliers; customers and clients; higher education or public research institutions; consultants, commercial labs, or private R&D institutes; government or public research institutes; domestic or international partners.

The road ahead

Overall barriers to entrepreneurship have progressively reduced over the last 10 years across OECD countries, according to the report. Countries with low burdens on starting up a business tend to have higher percentages of ‘opportunity entrepreneurs.’ Incidentally, ‘necessity’ was a significant driver in the emerging economies of China and India and also in some OECD countries such as Korea, Estonia, Greece and Spain.

In sum, the global crisis has heightened interest in entrepreneurship as an essential element to foster economic recovery and employment growth. The OECD’s 2014 report is packed with a range of data such as indicators of entrepreneurial determinants, and it would be terrific to see a similar report for emerging economies such as India and China as well, or regions like Asia.