Entrepreneurship is one of a major factor influencing the economy of countries in terms of international trade, infrastructure, employment and living standards as well as capital growth. It also reflects the effectiveness of government policies. The level of entrepreneurial activity not only interacts with the above factors, but also with cultural, geographical factors, and regulations. Personality characteristics, behavior and motivation are also the major elements which should be taken into consideration. 'There are many determinants of being or becoming self-employed which are dealt with in the literature, such as employment status, minority behaviour, immigrant behaviour, family firm effect and attitudinal effects' (Freytak & Thurik, 2007, P.120)). Entrepreneurship also relates to some other factors such as national policies (taxation, regulations, ease of doing business), entrepreneurship finance (banks, government support), economic circumstances (economic freedom), marketing (competitiveness), cultural (living style, historic background), public agency assistance (government support), personality (attitude to risk) and expertise etc.
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The assignment compares the level of entrepreneurial activity between US, China and Hong Kong as these three locations have contrasting characteristics with respect to all these different aspects. They also have similarities which relate to entrepreneurial activity. According to GEM Report 2007, the Early-stage Entrepreneurial Activity (TEA) was 9.6% in US, 16.4% in China and 10% in Hong Kong. All the factors have mentioned above have major effect on the TEA levels, the assignment will discover and compare the reason why they are influencing TEA in these countries, and it will categorize the factors which influencing the level of entrepreneurial activity into 5 major sections: cultural factors, government policies, geographical factors, economy, education and training.
Culture is 'the customs, institutions and achievements of a particular nation, people or group' (Oxford English Dictionary online). Culture has a significant influence on people and nation's attitude and behavior, personality's characteristics and motivation, perception, psychology as well as living style. It consists of history, tradition, literature, education, philosophy, social structure and society etc. In GEM Global Report 2008, it states that each individual has different level of fear of failure, perception towards entrepreneurship as well as willingness of people to take risk. As all countries have different historical background, people's attitude and behavior differ in different countries because of the different environments in which they have grown up. These are affected by the nation's culture and the effectiveness of the societies.
United State is a top leading country in the world with 300 millions of population (U.S. Census Bureau), it combines with many different nations of people, and thus it mixes with all different cultures. US people are highly acceptance of varies innovations, cultures and risks as they have been a multi-nations country since 18th century, and these create a welcome and open acceptance atmosphere and environment for all different kind of business innovation. They are open-minded people with high motivation, positive perception of risk, fear of failure and entrepreneurship. 'U.S. people pursuit of seemingly impossible dreams, impatience with time, acceptance of mistakes and intrigue with what's new' (Hammond and Morrision 1996). US people also think that becoming entrepreneur is a societally sanctioned and appropriate outlet for their achievement motivation. Since U.S. people have all these positive characteristics, it does help and encourage the entrepreneurship activities in the country, in GEM Report 2008, percentage of fear of failure would prevent starting a business in U.S was 44% while comparing Hong Kong was 37% in 2007. Percentage of entrepreneurship considered as desirable career choice in U.S was 63% while Hong Kong was 66%.
In Hong Kong, people generally work hard, long hours and are more productive in order to get ahead. Hong Kong people are a special group of people as they have mix personality characteristics which influence by the Chinese culture and also British culture as she was a British colony for 155 years. Hong Kong people can be characterized as strong aspirations and ambitions for wealth, societal pragmatism and Chinese values and work ethic like traditional Chinese; they can also be characterized as open-minded as strong perception of equal opportunity and willingness to adapt like western people. 'Hong Kong's culture is highly supportive of success achieved through self-sufficiency, autonomy, personal initiative - where the individual has ultimate responsibility for managing his or her own life - and entrepreneurial risk taking' (GEM Report Hong Kong 2007, P.40).
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Hong Kong people are a group of 'fast-turning' people in terms of business innovation, living as well as working. Hong Kong is a well known efficient city in the world. It is one of the world leading financial centers and Four Asian Tigers, these positions have influencing most of individuals to establish a basic financial concept and the sense of globalization, however, on the other hand, it also gives a pressure environment to people by being a competitive market. Therefore, by catching up the speed and securing their living standard in this fast changing world, Hong Kong people walk fast, work fast and change fast. According to The World Competitiveness Yearbook 2009, Hong Kong has the best overall ranking on business efficiency in the world, especially on flexibility and adaptability, when comparing US and China is in the position of 16 and 37 representatively.
As a multicultural nation, Hong Kong people have good perception of varies business innovations; they have evolved into their own brand by perceiving the ideas from other countries. Their living style also has been significantly influencing by other countries and culture, for example, fashion, eating, technology and home. They would like to show they are a group of new fashion people, by doing this, they keep trying new products and services to catch the top fashion. Thus, it gives lots of opportunities for creating different variation of business, for example, restaurants, cosmetic and high technology products.
Even though Hong Kong has been a colony of Britain for so many years, most people are still Chinese like. Chinese people often put family and money as the first two priority, they believe that running business is the best way to make money as well as gain a good reputation for themselves and their families. In Chinese culture, elders in families are hoping that they can have some wealth to pass on to their next generation, i.e. business, money and reputation. Therefore, this traditional culture does encourage entrepreneurship activities in Hong Kong as well as China.
China is one of the powerful developing countries in the world with 1.3 billion populations which contains more than four thousands years of history. People in China are fasten with the Confucian culture which asserts obedient, respect for parents and ancestors, therefore, Chinese people are strongly respect for age and hierarchy, and also put their families in the first priority. They also believe that hard work and successful business are the signs of reputation. The culture of social and economy were patriotism as most of the business activities were state owned, 'local government in rural areas invariably co-ordinated economic activities within their territory as if it was a diversified business corporation, with officials acting as the equivalent of a board of directors' (Li J & Matlay H 2006, P248 - 262). People's attitudes focus on follow the exact instructions from the top levels of management; they ignore creating any unnecessary innovation and ideas themselves to reduce the chance of making mistakes as their attitudes are extremely passive and collectivism, they motivate by the government, the state and moral to secure their jobs. People accept the traditional bureaucracy since the hierarchical culture characteristic; they obey, respect and sustain this management system without question. The entrepreneurial activity was not very popular under this centralized and official climate. However, follow by the economic development and globalization, this phenomenon has been changed. People start thinking the realistic about the business world due to the market economy and competition, and of course, the Chinese economic reforms in 1978 was also a crucial factor of this changed. The activities of private entrepreneurs have increased because of the open market. Young generations are not constraint by the culture and family factors, they start accepting the global business world, education, infrastructure, profit and insecure jobs. They also understand the important of innovation and creativity in these competitive economies.
2. Government policies
The government policies play a major role in creating and encouraging entrepreneurial activities across the country through business regulations such as business start-up requirements, taxation policy, the strength of copyright and trademark protection, the degree of government support, regulations, the extent of social benefits, and of free trade and the ease of doing business. Stel et al (2007) suggest that low regulation or high support route is the central choice for the entrepreneurship policy makers seeking to increase rates of new firm formation and subsequent wealth creation.
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Regulation systems differ from a country to another. In other words, some countries have heavy regulation system in which, for example, the procedure of establishing a new business or closing the business could be at higher costs and time consuming. On the other hand low regulation system is less complicated and would be more encouraging and attractive for entrepreneurial activities. For instance, starting a business requirements vary between countries, which probably gives advantages to some countries over others in terms of business creation. According to Stel et al., (2007) paper, decreasing start up barriers would have a positive impact on nascent entrepreneurs. Therefore, start up business requirements could play a significant role in the entrepreneurship rate because people who want to start an entrepreneurial business would be more inclined to quit their project if the start up requirements were hard for them to afford. To make it clearer, if the requirements are not so demanding, people with innovative new ideas would be more encouraged to establish their own business, which leads to a higher entrepreneurship rates.
Although taxation is a very important source for the government, taxation policy should be given high considerations regard on entrepreneurial activities since it largely influences the business environment in terms of cash flow, operations and profitability within a country. Enterprises can hire more employees, expand their businesses and buy more equipment if they could have a sufficient cash flow, which means that they are able to enhance the quality, quantity, efficiency and performance of their business objectives and operations as well as the ability of making profit. Since taxation policy is very sensitive, policy makers are required to seek a balance between the government interests and the economic growth because encouraging tax system would attract more entrepreneurial activities which can contribute to the national economic growth.
'Wealth is created by Americans - by creativity and enterprise and risk taking.
But government can create an environment where businesses and entrepreneurs and families can dream and flourish' (President George W. Bush). US Government always encourages entrepreneurial activities as she understands that the entrepreneurships and small businesses are the backbone of the US economy. According to the US Small Business Administration, the small business population in the United State consists of some 6 million employer firms and 20 million non-employer firms - 26 million firms in 2005. By helping these activities, US government has set a list of agenda on tax regime, health care, regulatory and information on small businesses (President George W. Bush).
US have developed a taxation policy which has encouraged entrepreneurial activities all around the country. This was mainly by cutting the capital gain tax rates from 49% before 1977 to 15% at the meantime besides reducing the top individual marginal rates from 70% prior to 1981 to about 38% in 2007 (Acs & Szerb 2007, P.111). The US government has also taken action towards increasing small business expenses, simplified taxes for small businesses and permanently repeals the death tax intent to help to help small businesses. However, due to the recession economy in US, entrepreneurial activities have much difficulty than ever in terms of financing, running costs and business turnover. Therefore, to encourage the activities, President Obama has signed an American Recovery and Reinvestment Act on 17th February 2009 which intent to release the pressure of the current businesses as well as maintain and encourage people's intention becoming an entrepreneur. The plan includes 'a series of tax cuts for small businesses and tax incentives to encourage investments in small businesses' (The White House) which for instance, cut down the capital gain tax to zero and allow deduction on capital investment up to $250,000 (USD) in 2009 and which was $125,000 (USD) in 2008.
Hong Kong is a well known low tax rates city in the world, she has no value- added, sale and capital gains tax and her corporate tax rate in 2008 was 16.5% when comparing US and China was 40% and 25% representatively, it is amongst the lowest in the world. She also has a simple tax system which attracts 3,237 oversea companies to set their regional headquarters in Hong Kong. In GEM Report, it agrees that the low corporate tax was an important factor in making Hong Kong an attractive place for businesses.
Follow by the economic reforms in 1978, China has been evolution from central planning to a system of management responsibility and accountability, opened market to the world and becoming globalization. The economy has an amazing growth in the past 30 years. Entrepreneurial activities were no longer township and village-based enterprises, or small family-based businesses; instead, they become more public ownerships and involve a large volume of international businesses. The private business in China is the fastest-growing sector of China's economy (Entrepreneurship in China). Her TEA was gradually increased from 10.5% in 2003, 11.6% in 2004 to 16.2% in 2006 and 16.4% in 2007. In order to attract more outside investors and entrepreneurs, many foreign companies were allowed to pay much lower rate due to tax holiday and tax rate concessions provided to new companies in China (Rowbotham B 2009), the Corporate Tax rate in 2007 was 30%. However, Chinese government recognizes that this lower rate tax policy actually having a significant adverse impact towards the local businesses regard on fairness, cash flow and motivation etc, therefore, the government has established a new tax regime which standardize the Corporate Tax at 25% and which has been taken effect on the 1st January 2008. The government also applies a Value-added tax of 17% on imports and sales of tangible goods which exclude basic food and necessities, and also there is a business tax of 3% to 20% applies on different sectors of businesses.
Copyright and trademark protection
'One of the ways entrepreneurial economies motivate people to become entrepreneurs is by giving their ideas legal protection' (Acs & Szerb 2007, P.116). Innovation, creativity and new ideas are the essence elements on the entrepreneurial activities when they start up a business, therefore, countries should provide a confidence and secure environment to ensure the flourish entrepreneurial activities and avoid these ideas being stolen, copied or reproduced. Copyright, patent and trademarks protects are necessary and essential legislations to achieve this purpose. Copyright includes 'literary, dramatic, musical, artistic and certain other intellectual works' (United States Copyright Office), it constrains on the 'the form of expression rather than the subject matter of writing'. Patent is a protection of any invention and trademark is a brand, name or symbol of a good or business which use for identify and distinguish itself from one to another. The most serious problems of piracy are in the digital world and the counterfeiting of different products, and the problems actually have started in 1990s. According to The Software & Information Industry Association, the software industry loses $48 billion worldwide in 2007 due to piracy occurring at corporations and other organizations (SIIA Anti-piracy Year in Review). It is a serious and significant impact to the industry and will likely to bring a concern to other industries and sectors about their confidence on intellectual matters. There are one-third of broadband users pirate (Survey, TorrentFreak 2009), and this phenomena seems already has been accepted by the general users as they think that it is not a big issue because so many people are doing it and he/she is not the only one. So, governments should not only strengthen on the action against the piracy producer, but should actually bring more positive signal to the public as well as young generations. On the other hand, the price of the original software has to be adjusted as it is an extremely important factor which causing the piracy market expanded (Lau K W, 2006). It is understandable that the price of original software are to be set at high level to show the quality and the value of the ideas, however, if this strategy will cause an opposite effect which make huge losses rather than earn a large margin of profit as what they expected, then obviously they are destroying their original market themselves.
In US, the 1976 Copyright Act is the act which protects the original work of authorship not being unauthorized published. The Act defines publication as 'the distribution of copies or phonorecords of a work to the public by sale or other transfer of ownership, or by rental, lease, or lending. The offering to distribute copies or phonorecords to a group of persons for purposes of further distribution, public performance, or public display constitutes publication. A public performance or display of a work does not of itself constitute publication' (United States Copyright Office). The act actually does cover all possible occurrence to protect the copyright owners and respectful of intellectual property. The United States Patent and Trademark Office in US is the department which deals with the protections of patent and trademark, it provides the service of protection, advice as well as 'promotes the industrial and technological progress of the nation and strengthens the economy' (General Information Concerning Patents). All these information can be accessed easily on their websites with clear advice and procedures of the applications. Even though there is still a large losses in the software industry in US with $9.1 billion in 2007, she is still the lowest PC software piracy rate in the world with 20% when compares with China is 82% and Hong Kong is 51% (Piracy Study 2007, P.10-11).
Same as US, Hong Kong has an individual department to deal with intellectual property which is called Intellectual Property Department. However, Hong Kong has a serious piracy problem and having a loss of $180 million USD in 2006. It has stopped investors investing in Hong Kong especially on the movie and music sectors. Due to this problem, the government has established the 'Copyright Ordinance' in 1997, the government amended and updated this legislation almost every year since then and aim to control this piracy activities (Tong). As a result, these activities have a slightly decreased, according to Global PC Software Piracy Study, the piracy rates has decreased from 52% in 2003 to 51% in 2007 (Piracy Study).
China also has a serious problem on this matter and she is one of the most piracy counties in the world with the piracy rate as high as 82% in 2007 (Piracy Study). It has stopped some investors entering into Chinese market, for instance, Sony had announced that it decided to postponed its China launch of the new Playstation 2 in December 2003, due to this problem (Sony pulls China's PS2 launch). However, China actually began the official copyright protection since 1068 and the formal legal copyright protection only begins in 20th century (Zhang F and Xie D, P.1), but according to the piracy rate in China currently, it seems that there is ineffective and strict enough on working on this matter.
3. Economic factors
This is one of the biggest issues affecting entrepreneurial activity, both internal and external to the enterprise. Internally, the cost of running an enterprise in terms of materials and labor are the decisive factors influencing the effectiveness of operation within enterprises. Externally, market efficiency, economic freedom, market competitiveness, the level of employment and the availability of funding also have major impact on entrepreneurial activity.
Entrepreneurial activities also differ across countries that have different levels of economic development (GEM 2007). Normally what people expect that the relationship between entrepreneurial activities rate is negatively affected by a low level of economic development. However, according to GEM report 2008, countries with very low income per capita (income per capita is used as a measure of the economic development level). This trend could be caused employment scarcity or by very low wage employment in the country, which is not the case in countries with high income per capita. Therefore, people within low income per capita would be more inclined to start their own business in order to achieve a better living. Wennekers et al 2005 pointed out that a high percentage of entrepreneurs in less developed countries are more likely to engage in entrepreneurial activities out of necessity rather than exploiting opportunities. He gives an example of Norway where the opportunity nascent entrepreneurship forms 99% of the total nascent entrepreneurship whereas it is below 60 % in countries like South Africa, Brazil, Argentina and Chile. Iyigun and Owen 1998 assert that there is a negative relationship between the level of economic development and self-employment activity rate in the labor force. In high economic development countries, people would earn relatively high incomes, which leads them not to risk losing their jobs to start a new business. Since they consider they are in a safe situation with their current well-paid jobs. Comparing countries which are categorized with well- developed economics, the GEM report 2008 shows that there are considerable differences in the entrepreneurial activity rates even among countries that have similar level of economic development.Â When there is a very high level of economic development it increases income and wealth among customers. Those customers would increase the demand for variety and this would create new opportunities to be exploited by small businesses (Jackson 1984). According to the data provided, good level of economic development does not necessarily play a positive role in determining the rate of entrepreneurial activity rate within a country. This point is demonstrated when countries with very low economic development have much higher entrepreneurial activities than those with higher level of economic development. The subprime crisis, called the worst financial crisis since the one related to the Great Depression by leading economists, caused world economic panic and a significant decline in economic activity. The subprime crisis impact timeline lists dates relevant to the creation of the United States housing bubble and the 2005 housing bubble burst and the subprime mortgage crisis which developed during 2007 and 2008. Actually, most countries show a decrease in perceived opportunities for starting a business between 2007 and 2008. On the other hand, fear of failure among those who perceive good start-up opportunities has risen to some extent in 2008. As a result of the recession, entrepreneurs' perceived opportunities for starting a business will be lower because of declining demand for products and thus declining expected returns, and lower supply of entrepreneurial finance caused by banks being more risk averse.
Due to the financial crisis, the GDP in US has declined from 1.1% in 2008 to -2.8% in 2009 (World Economic Outlook, April 2009). Not surprisingly, the GEM Global Report 2009 shows that entrepreneurial activities in most countries were decreased in 2009 due to the crisis, and of course, US is one of the affected country and her TEA has decreased from 10.8% in 2008 to 8% in 2009.
Funding and financing
To obtain funding is a first step when starting up a business. Low cost capital, government funding support and easy access to bank loans would encourage entrepreneurial activity. However, lenders such as banks and other private lenders become more caution on lending because of the experience of the credit crunch. Lenders nowadays in US and worldwide go through each loan application as a microbe scanning process, enterprises are no longer loan from them as easy as before, and it is crucial factors which stop entrepreneurs' dreams come true. Due to the deficit in US, the government has cut the SBA (Small Business Administration) annually loans from $20 billion to $10 billion this year (The White House). It seems there is no effective to help in this recession year until the whole economy getting better.
Same as rest of the world, Hong Kong has been serious affected by the financial crisis. The GDP in Hong Kong has declined in a large scale from 2.5% in 2008 to -4.5% in 2009 (World Economic Outlook, April 2009). The TEA in Hong Kong has sharply declined from 10% in 2008 to 1.6% in 2009.
Funding and financing
There are few different ways of raising fund for entrepreneurs in Hong Kong, but interestingly, not a business loan from banks as banks in Hong Kong are not willing to loan for any small new venture due to risk concern. However, entrepreneurs are able to raise fund from banks as personal loan and using credit card, more often, people in Hong Kong usually raise funds from friends and family. The government also provide SME Loan guarantee scheme which intends to help small and medium enterprises.
China is one of the least affected countries in the financial crisis, the GDP has slightly decreased from 9% in 2008 to 6.5% in 2009. However, the TEA in China has increased from 16.4% in 2008 to 18.8% in 2009 and it is because of 'the venture capital in China was going quickly and appeared poised to overtake Europe in the next few years in terms of funds invested' (GEM Report 2009).
Funding and financing
Same as Hong Kong, people in China are difficult to get loans from banks for small new ventures due to risk concern; people usually raise funds from friends and family. However, The Ministry of Finance and the Ministry of Commerce (MOC) promulgated the 'Notice on Issues Concerning the Usage and Management of the 2009 Special Funds for the Development of Small and Medium Commercial Enterprises' (Commercial Information Circulars) which aims to help and encourage the development of entrepreneurial activity.
4. Education and training
Higher education and expertise are always the essential elements in every segment of businesses for assuring the quality and competitiveness. Countries with high level of education system in average would help entrepreneurs to develop ideas and confidence as well as enhance the economy by moving into high technologies level. According to the GEM Report 2008, formal and informal entrepreneurial education and training does not meet the standards required to help economic growth in the foreseeable future. Within the GEM survey it has indications that provide evidence to suggest there is a direct correlation between the level of education within a particular country and its citizens' entrepreneurial and economic success, For example, 'among factor-driven countries, the proportion of individuals who had received any training in starting a business, either in school or after school'. The level and quality of education someone receives has an effect on that individuals ability and their practical capability to succeed economically within their surroundings, so, if someone is born in Mongolia and receives little or no formal or informal education, they will have a reduced probability of becoming entrepreneurial in their future life, as they will never have been taught the skills necessary to succeed as an entrepreneur in the future. If you have not learnt the entrepreneurial skills necessary to compete in the business world any ideas you may have, and would like to develop economically, then it will have a significantly reduced chance of success. 'Entrepreneurs are not born, they are made. While their predisposition may be important it does not have any meaning in isolation from their experiences. It is not inherent within a person, rather it exists in the interactions between people and with social situations' (Wickman P 2003, P.18). This is agreed with by Duening and his ideas about effectuation theory, what he said, "is that anyone can be an entrepreneur, but not everyone can be. If there is a fit between opportunities in the prevailing environment, and the skills and resources available to the individual, then success may be in the offing. If such a fit is not present, the aspiring entrepreneur may need to wait for conditions to change, or effect changes in personal skills and resources' (Duening T 2008).
There is a compulsory free education for US citizens until they reach the age of 18 to ensure everyone has a opportunity to be educated and reach a level of knowledge. The government has spent 13.7% of the government expenditure in 2005 on the education (UNESCO Institute for Statistics).
There is also a 9 years free and compulsory education to ensure people have reached certain level of education, it also has colleges for training in particular sectors. The government has spent 23% of the government expenditure in 2005 on the education (UNESCO Institute for Statistics).
China has started providing nine years free and compulsory education since 1986 which intents to enhance the educational level of the citizens. There was 13% of government spending on education in 2000 (UNESCO Institute for Statistics).
Overall, in my point of view, there are many factors which causing different level of activities in entrepreneurship, i.e. cultural, economics, psychological, personality and characteristics, personal behaviour and perception and the environment. It is difficult to identify any particular factor is the major or the only factor influencing the TEA in each country as all those factors are linked and related to each other. The number of entrepreneurial activity is the result of the effect when all these factors interacting with each other.