Entrepreneurship Industry News

‘India has lowest entrepreneurial exit rate among factor-driven economies’

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India has the lowest entrepreneurial exit rate among factor-driven and BRICS countries surveyed by the Global Entrepreneurship Monitor (GEM), a global consortium researching on entrepreneurship.

The GEM India Report says that only 2.3 per cent of adults reported discontinuation of their business in 2015-16, among factor-driven and BRICS countries.

According to the World Economic Forum (WEF), countries competing primarily on the use of unskilled labour and natural resources are categorised as factor-driven economies. In such economies, companies compete on the basis of price, as they buy and sell basic products or commodities.

According to the GEM Report, Burkina, Faso, Cameron, Senegal, India, Iran, Kazakhstan and the Russian Federation are among the factor-driven economies, while Brazil and China are part of the efficiency-driven economies.

Dr Sunil Shukla, GEM India Team Leader and Director, Entrepreneurship Development Institute of India (EDII-Ahmedabad) said, on Wednesday, start-ups and launch of new businesses are dependent on the exit policy for businesses in the country. It may be possible that some form of discontinuation of business may help entrepreneurs unlock resources and utilising them in more optimal allocations. Hence, discontinuation does not necessarily have a negative impact on an entrepreneur.

The consortium, which surveyed around 3,400 adults across 23 states, found that 47 per cent of entrepreneurs discontinued because of unprofitable ventures, 22 per cent exited for personal reasons, 13 per cent had financial constraints and 8 per cent discontinued as they got an opportunity to sell the business.

GEM measures discontinued business rate as the percentage of individuals aged 18-64 years who owned a business but discontinued it for different reasons during the past 12 months.

Sixty-two countries are part of the GEM Consortium that researches on trends in entrepreneurship in these countries. The GEM India Team comprises EDII- Ahmedabad (Lead Institution), the Centre for Entrepreneurship Development Madhya Pradesh-CEDMAP (Bhopal), and the Jammu and Kashmir Entrepreneurship Development Institute-JKEDI-(Srinagar).

The GEM survey provides data for researchers, knowledge on global entrepreneurship for educators and practitioners, and information to guide policy-makers in formulating effective and targeted policies and programmes to stimulate and support the efforts of entrepreneurs.

The survey also studied the motivational aspect of starting businesses to better understand entrepreneurial activities. The GEM conceptual framework uses necessity-driven, opportunity-driven and improvement-driven motives to understand entrepreneurial activity. According to the survey, almost 79 per cent of early-stage Indian entrepreneurs were motivated to start a venture by some business opportunities, which is the highest amongst BRICS economies. Correspondingly, only 19 per cent of the early-stage Indian entrepreneurs were forced into entrepreneurship due to a lack of other alternatives and 34 per cent of the adult population were improvement-driven entrepreneurs.

Dr Shukla said during 2015-16 and 2016-17, there was an incremental growth in improvement-driven entrepreneurial activity in India, from 34.3 to 43.3 per cent.

Read more: BusinessLine

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