2003 Global Entrepreneurship Monitor Finds Uptick in U.S. Entrepreneurial Activity; More Than 80 Percent of Entrepreneurs Worldwide Expect to Create Jobs.

Business Editors/Education Writers

LONDON & KANSAS CITY, Mo.--(BUSINESS WIRE)--Jan. 8, 2004

5th Annual Kauffman-Sponsored GEM Report Takes First-Ever Look at

"Entrepreneurial" Activity in Existing Firms

More than 11.3 percent of adults in the United States were engaged in entrepreneurial activity in 2003, representing an increase from 10.5 percent recorded in 2002, according to the 5th Annual Global Entrepreneurship Monitor (GEM), the study of worldwide entrepreneurship being released simultaneously today in London and in Kansas City, Mo. GEM is conducted by researchers at Babson College and London Business School and is funded by the Kauffman Foundation of Kansas City.

The uptick indicates a positive shift from 2001 and 2002, when entrepreneurial activity in the U.S. was on the decline after hitting a peak of 16.7 percent in 2000.

"The increase in entrepreneurship in the U.S. is a small but positive step that appears to mirror our recovering economy," said Kauffman Foundation President and CEO Carl Schramm. "This report estimates that as many as 300 million people around the globe were trying to launch new firms in 2003 - that's more than the entire population of the United States. These significant numbers make it clear that entrepreneurship is an enduring human phenomenon - one that sparks innovation, creates jobs and contributes to more prosperous national economies."

GEM also found that more than 80 percent of entrepreneurs throughout the 41 countries studied expected to create new jobs as soon as their firms were more established, signaling widespread optimism.

The 2003 GEM includes a first-ever global look at "entrepreneurial like" activity in existing firms - that is, when businesses provide innovations, not just replicate existing goods or services. For example, Nokia began years ago as a company that made safety matches and rubber boots but later engaged in entrepreneurial activity by developing innovative high-tech products, such as cell phones, and becoming a global leader in the market.

KEY STUDY FINDINGS

Prevalence and Impact of Entrepreneurship

-- Of the 41 countries in the study, Chile, Korea, New Zealand,

Venezuela, and Uganda were ranked the most entrepreneurial,

with high Total Entrepreneurial Activity (TEA) and Firm

Entrepreneurship Activity (FEA) indexes. GEM 2003 ranks

countries according to two different indexes: 1) the number of

new start-ups and young firms (the Total Entrepreneurial

Index), and 2) the number of "entrepreneurial" firms - defined

as those that are creating innovative products and services

and anticipating growth (the Firm Entrepreneurship Index).

While Chile, Korea, New Zealand, Venezuela, and Uganda were at

the top of the scale, Sweden, Netherlands, Chinese Taipei,

Croatia, Japan, Russia, and Poland were ranked at the bottom.

The United States was near the top, ranking 7th in TEA, and

5th in FEA.

-- Entrepreneurship in the United States experienced a slight

uptick in 2003. The 2003 U.S. TEA Index was 11.3 percent, up

from 10.5 percent in 2002. This increase represents a positive

shift from 2001 and 2002, when entrepreneurial activity in the

U.S. was on the decline after hitting a peak of 16.7 percent

in 2000.

-- It is much more common for a firm to be started than for a

firm to be entrepreneurial. For the first time, GEM was able

to survey existing companies for entrepreneurial behavior -

that is, those that are creating innovations and anticipating

growth. GEM found five times as many individuals working to

start new firms as there are owners of existing

entrepreneurial companies. The studied showed that the

overwhelming majority (95 percent) of existing firms continue

to replicate existing activity and are not very

entrepreneurial.

-- Approximately 80 percent of entrepreneurs worldwide expect to

create jobs once their firms are more established. About one

in five expect to provide 20 or more new jobs. New firms

account for between 2 and 15 percent of current jobs in GEM

countries.

Financing Entrepreneurial Ventures

-- The majority of start-ups rely on family members for funding.

Three out of every 100 adults in GEM countries have invested

in someone else's business. The majority of these

non-institutional "informal" investors are family members of

entrepreneurs, with 43.7 percent reporting that they invested

in a close family member's business. Another 29.2 percent

invested in a friend or neighbor's business, 9.3 percent in a

stranger's, 8.9 percent in a relative's, and 8.9 percent in a

work colleague's.

-- Informal investors hold the key for start-ups. Informal

investors funded 99.96 percent of all businesses and supplied

90 percent of the total amount invested in GEM nations. Fewer

than 37 out of every 100,000 start-ups received venture

capital money.

-- Approximately 80 percent of formal venture capital funding

worldwide happens in the United States. Venture capital firms 

in the GEM countries provided $32 billion in funding to

businesses in their own countries. VC-backed firms in the U.S.

received about 80 percent, or approximately $25.6 billion, of

that total. Additionally, more than 80 percent of the venture

capital invested in the hardware and software industry in the

G7 nations went to U.S. companies.

Demographics 

-- Men are twice as likely as women to start businesses. The

gender gap in entrepreneurial activity around the world

remains significant: on average, about 64 percent of start-up 

activity is reported by men, only 36 percent by women.

However, there are some gender differences among countries:

the disparity between males and females involved in

entrepreneurship is highest in Israel and Croatia and lowest

in Thailand and Venezuela.

-- Two out of every three entrepreneurs are between ages 25 and

44. Globally in 2003, 32.3 percent of entrepreneurs were ages

25-34, and 30.6 percent were 35-44. However, 12 percent were

18-24 and 17.4 percent were 45-54. Only 6.7 percent were ages

55-64 and only 1 percent of entrepreneurs were over age 65.

-- Tomorrow's entrepreneurs are today's employees. A large

majority - over 80 percent - of the people involved in

starting a firm are already employed in another job.

-- Education level and household income impact entrepreneurial

motivations. Individuals who are more educated and who have

more money are more likely to pursue entrepreneurship because

of a perceived opportunity, rather than out of necessity. GEM

2003 found that people with post-secondary or graduate

educations were twice as likely to be involved in an

entrepreneurial firm as those with less education. Individuals

with the highest level of household income were six times more

likely than people with the lowest income level to own a firm

that is entrepreneurial.

-- Entrepreneurship is contagious. People who know someone who

started a business in the past six months are two to three

times more likely to engage in entrepreneurial activity

themselves.

REPORT IMPLICATIONS

Carl Schramm, president and CEO of the Kauffman Foundation, emphasized the importance of government policies and programs aimed at nurturing entrepreneurship. "Governments can either fuel entrepreneurs or stop them in their tracks," he said. "When you consider that these entrepreneurs create jobs and wealth for their communities, develop innovations that make people's lives better and contribute to national economic growth, you understand the importance of developing policies that make the ground fertile for entrepreneurship to thrive."

While some factors are beyond government control, such as the age structure of a country's population, the 2003 GEM report highlights a number of steps governments can take that might improve both the level of start-ups and entrepreneurial activity among existing firms:

-- Provide a more positive personal context by increasing

education and training in business start-ups, including

capacity for opportunity recognition, and increase contact

with existing entrepreneurs.

-- Reduce the complexity and cost of registering a new business.

-- Increase net in-migration.

-- Increase national cultural support for entrepreneurial career

options.

-- Reduce the scope of economic activities managed by government.

-- Create incentives to encourage more informal investment.

ABOUT THE GROUPS

The Ewing Marion Kauffman Foundation of Kansas City works with partners to advance entrepreneurship and improve the educational achievement of youth. The Kauffman Foundation is the only major foundation in America focused on increasing the number and success of entrepreneurial ventures. It was established in the mid-1960s by the late entrepreneur and philanthropist Ewing Marion Kauffman. Information about the Kauffman Foundation is available at www.kauffman.org.

Babson College in Wellesley, Mass., is recognized internationally as a leader in entrepreneurial management education. Babson grants BS degrees through its innovative undergraduate program (recipient of the 2002 Theodore M. Hesburgh Award). It grants MBA and custom MS and MBA degrees through the F.W. Olin Graduate School of Business at Babson College (currently celebrating 50 years of Babson MBAs). Babson School of Executive Education offers executive development programs to experienced managers worldwide. For information, visit www.babson.edu.

London Business School's vision is to be the pre-eminent global business school, nurturing talent and advancing knowledge in a multi-national, multi-cultural environment. Founded in 1965, the School graduated over 800 MBAs, Masters in Finance, Sloan Fellows and PhDs from over 70 countries last year. The School's executive education department serves 5,000 executives and 60 corporate clients on its programs every year. London Business School is based in the most accessible and international city in the world. Visit www.london.edu.