Nearly 20% Of World's Entrepreneurs Work With Family Members, According To The 2018 Global Entrepreneurship Monitor

Staff Report

Tuesday, January 22nd, 2019

Nearly 20% of the world's entrepreneurs are working with family members, according to the 2018/2019 Global Entrepreneurship Monitor Global Report, sponsored by Babson College, Universidad Del Desarrollo and Korea Entrepreneurship Foundation. Furthermore, 6% of individuals aged between 18-64 in 27 countries are part of the gig economy and the sharing economy.

"The Global Entrepreneurship Monitor Global Report shows that the global economy nourishes entrepreneurs of all kinds. There is a lot of media attention for innovative startups, however entrepreneurial employees, family business entrepreneurs, and small-scale established entrepreneurs also play a key role in national and local economies," said coauthor and Utrecht University Entrepreneurship Associate Professor Niels Bosma. "This year, GEM results also confirmed that entrepreneurial activity in the gig and sharing economy is substantial in all parts of the world."

"It might not be a surprise that many businesses are family owned, particularly when we see them every day in our communities and read about large family-owned corporations in the news. Nevertheless, to our knowledge, this is the first global study of family involvement in the startup phase. The results illustrate the extent entrepreneurs rely on family members to get their businesses off the ground," said coauthor and Babson College Entrepreneurship Professor Donna Kelley.

Global GEM Highlights

Nearly one in five entrepreneurs are starting businesses that will be owned and/or managed with family members, in the 47 economies assessing family business activity. Colombia, the United Arab Emirates, and Uruguay reports the highest level of family-based entrepreneurship, accounting for over one-third of entrepreneurs.

The highest rate of involvement in gig/sharing economy activities, measured in 27 economies, is in the Republic of Korea (over 20% of the adult population). Israel, Chile, Ireland and the United States also report high rates of involvement in the gig and sharing economy, with over 10% of the adult population engaging in these activities. This new international comparison shows that involvement in gig/sharing economy activity is significant across the globe.

GEM has introduced a composite index, the National Entrepreneurship Context Index, which assesses the environment for entrepreneurship in an economy. The NECI is derived from the 12 framework conditions and weights the ratings on these conditions by the importance experts place on them. Qatar, a high-income country in the Middle East, receives the highest NECI ranking, following by Indonesia and Netherlands. An examination of the top-ranked economies illustrates the importance of having healthy conditions across all aspects of the environment affecting entrepreneurship. The NECI results in this report represent an inaugural effort to inform policy, practitioner, and other key stakeholder audiences, about the strength of their overall environment for entrepreneurship.

Technology vs Wholesale/Retail: In every low-income economy, wholesale/retail businesses account for more than half of their entrepreneurs. In contrast, in half of the high-income economies, nearly 50% or more of the startup activity is in service or technology industries.

The report examines societal attitudes about entrepreneurship, which can indicate the extent there are potential entrepreneurs and support for this activity. In three countries in Europe (Netherlands, Poland, and Sweden) about three-fourths of adults state it is easy to start a business in their countries, the highest of the 49 economies studied. In Netherlands and Poland, in addition to Turkey, Thailand, Guatemala and Madagascar, over 80% of people think entrepreneurship is a good choice of career. Thailand also shows the highest level of media attention for entrepreneurs with 87% of adults stating that entrepreneurs are represented positively in the media. In Sweden, 82% of adults believe there are many opportunities around them for starting businesses, the highest level across the entire sample.

About The Report

With its 2018 Adult Population Survey and National Expert Survey, GEM has completed 20 years of entrepreneurship research in economies from a wide range of regions and economic development levels around the world.

This 20th anniversary report profiles 49 economies with respect to demographics, their potential impact, the diversity of forms they take, and their longer-term sustainability. A look back at 20 years shows how entrepreneurship has evolved over time in five countries (the United States, Brazil, Germany, Iran and China). Finally, the report looks outward at the environment for entrepreneurship, reporting on societal attitudes, self-perceptions and entrepreneurial affiliations with entrepreneurs, and then introducing the National Entrepreneurship Context Index, which ranks economies based on 12 indicators of the external context that can influence entrepreneurship.

Key Findings

The Demographic Profile of Entrepreneurs

Total early-stage Entrepreneurial Activity (TEA) Rates. The highest TEA rates can be found in Angola (41%), a low-income economy. However, high rates can also be found at higher income levels with middle-income Guatemala reporting 28% TEA and high-income Chile reporting a level of 25%.

Gender. Of 48 economies surveyed by GEM in 2018, six show roughly equal TEA rates between women and men. Two are in the East and South Asia region (Indonesia and Thailand), one is in Latin America (Panama), and three come from the Middle East and Africa region (Qatar, Madagascar and Angola). These countries span all three income levels.

Impactful Entrepreneurship

Improvement-Driven Opportunity (IDO) Motives. The proportion of entrepreneurs who are opportunity-motivated and improvement-driven, in terms of seeking higher income or greater independence, accounts for an average of 37% of entrepreneurs in the low-income economies. This increases to 42% on average among the middle-income economies and 51% in the high-income economies.

Growth Expectations. The highest proportions of entrepreneurs projecting to create six or more jobs in the next five years are in the United Arab Emirates (UAE) and Colombia, both of which report that half or more of entrepreneurs have these expectations.

Innovation. Innovation among entrepreneurs is most prevalent in India (47%), and Luxembourg and Chile (both 48%), where entrepreneurs are introducing products or services that are new to customers and not generally offered by competitors.

Internationalization. The Middle East and Africa region contains economies with the highest levels of international entrepreneurship, where 59% of entrepreneurs in Lebanon and 55% in Morocco state that 25% or more of their sales are to international customers.

Industry. The most noticeable industry trend in the movement from low to high-income groups is the decline in wholesale/retail activity, which is taken up by the increase in services and technology. In every low-income economy, wholesale/retail businesses account for more than half of their entrepreneurs, while only four of the 31 high-income economies report this level. In contrast, in over half of the high-income economies, 20% or more of the startup activity is in finance/real estate/business services, while few entrepreneurs in the low-income economies are starting in this sector.

Entrepreneurship of All Kinds

Solo Entrepreneurship. In Brazil, 53% of entrepreneurs operate on their own, with no co-founders or employees, and projecting no hiring. The next highest level on this indicator is in Madagascar, where 30% of entrepreneurs are operating on their own and plan to continue this.

Entrepreneurial Employee Activity. Entrepreneurship among employees of existing organizations is most prevalent in Europe. In Sweden, Germany and Cyprus, entrepreneurship is at least as likely to occur in organizations as it is in independent startups. In other countries, like the Netherlands and Canada, high levels of employee entrepreneurship complement high TEA rates.

Family-Based Entrepreneurship. Family-based start-ups contribute substantially to entrepreneurship in many economies. In Angola, Lebanon, Guatemala, Chile, Colombia and Thailand, 10% or more of the adult population are starting businesses involving family members.

Gig Economy and Sharing Economy. The rise of the gig economy and sharing economy worldwide led 27 GEM teams to include questions on this topic in their 2018 survey. The highest rate of involvement in such activities by far is in the Republic of Korea (over 20% of the adult population).

Sustaining Entrepreneurship

Established Business Ownership. The East and South Asia group is distinct in showing a relatively high level of established business activity relative to TEA. In Thailand, where TEA rates of 20% are highest in the region, an equal number of people (20%) run mature businesses. In Latin America, and in the Middle East and Africa, most economies show higher startup levels than established business activity.

Discontinuance. In most cases, discontinuance follows TEA. For example, in Thailand, Chile, Guatemala, and Lebanon, discontinuance rates are high, but so is TEA. Conversely, discontinuance is low in many European countries, as are TEA rates. Among various reasons cited for discontinuing a business, the most common was a lack of either profitability or capital, accounting for an average of 45% of exits, unweighted across the sample.

Entrepreneurial Activity across Time and Geography: Two Decades of GEM Results

Longitudinal analyses of three key entrepreneurial activity indicators (Total early-stage Entrepreneurial Activity (TEA), Established Business Ownership, and Entrepreneurial Employee Activity) were examined in five key economies from different global regions that have participated in GEM for all of the many GEM cycles.

The United States shows a decline in TEA after the financial crisis, with a rebound in 2011, and with established business activity showing a lagged effect consistent with changes in TEA.

TEA and established business ownership in Brazil exhibit a gradual increase since 2001, with some changes reflecting the political climate.

Changes in both TEA rates and established business ownership rates in Germany have been fairly moderate relative to those of other countries in Europe. These rates did not show a decline after the financial crisis that hit the country particularly hard in 2009.

In Iran, TEA and established business ownership show a general upward trend since 2008, with some changes in TEA coinciding with shifts in GDP growth, but also exhibiting a decline in 2018.

China's stable economy appears to be accompanied by a decrease over time in TEA and established business activity, possibly due to the strength of large business.

Entrepreneurial Potential and Support

Societal Beliefs about the Status of Entrepreneurs and Entrepreneurship as a Career Choice. Most European and North American countries show that more people believe entrepreneurs have high status, than think entrepreneurship is a good career choice. The opposite pattern appears in Latin America and the Caribbean, where in most economies, more people think entrepreneurship is a good career than believe it affords high status. The Middle East and Africa region is notable for high levels on both indicators.

Ease of Starting a Business. Three countries in Europe show the highest level on this indicator, with about three-fourths of adults in the Netherlands, Poland, and Sweden stating it is easy to start a business in their countries.

Media Attention for Entrepreneurship. Media attention is high in East and South Asia, particularly in Thailand (87%), Indonesia (80%), and Taiwan (76%).

Opportunity and Capability Perceptions. High levels on both of these indicators occur in three Middle East and African countries, where over 70% of adults in Saudi Arabia, Angola and Sudan see many entrepreneurial opportunities around them, and over 75% of adults believe they have the ability to start a business.

Fear of Failure. Latin America stands out for its low fear of failure rate. In every economy in this region, fewer than one-third of those seeing opportunities state that fear of failure would prevent them from starting a business. The Middle East and Africa is distinct in having both the lowest fear of failure in the entire sample (17% in Angola) and the highest (64% in Morocco).

Affiliations with Entrepreneurs. The highest and lowest personal affiliations with entrepreneurs in the entire sample are found in the Middle East and Africa. People are most likely to know an entrepreneur in Saudi Arabia (79%) but least likely to know one in its neighboring country of Egypt (12%).

Entrepreneurial Intentions. Entrepreneurial intentions are higher than TEA in every economy in Latin America and the Caribbean, in the Middle East and Africa, and, with the exception of Japan, in East and South Asia. The largest gap in these indicators across the entire sample is found in Morocco and Egypt, where for every person starting a business, six intend to start in the next three years.

The Entrepreneurship Context

With this report, GEM introduces a composite index, the National Entrepreneurship Context Index (NECI), which assesses the environment for entrepreneurship in 54 economies. Derived from 12 framework conditions, the NECI weighs ratings for these conditions by the importance experts place on them.

NECI results are consistently high in the East and South Asia region, where three economies rank in the top five for NECI results—Indonesia (2), Taiwan (4), and India (5).

Conversely, the Latin America and Caribbean region shows consistently low results, with no economies making the top 20 (Argentina holds the highest ranking at 21), and with two economies among the lowest five ranked—Panama (52) and Puerto Rico (51).

The Middle East and Africa region contains both the highest ranked country (Qatar) and the lowest (Mozambique).

Europe shows results a little less dramatic but still highly diverse, with the number three rank in the Netherlands contrasting with Croatia at number 53.