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Industrial Policy Training Workshop (TIPS-SADRN-CREI) Promotion of Entrepreneurship and New Firm Growth (with emphasis on SMEs) Hugo Kantis (PhD)

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Presentation on theme: "Industrial Policy Training Workshop (TIPS-SADRN-CREI) Promotion of Entrepreneurship and New Firm Growth (with emphasis on SMEs) Hugo Kantis (PhD)"— Presentation transcript:

1 Industrial Policy Training Workshop (TIPS-SADRN-CREI) Promotion of Entrepreneurship and New Firm Growth (with emphasis on SMEs) Hugo Kantis (PhD)

2 A) The entrepreneurial process: a systemic approach B) Entrepreneurship policy

3 Entrepreneurship & development Population’s effective capacity of creating and developing dynamic and sustainable organizations- firms- innovative projects: key driver

4 Entrepreneurship: main contributions Employment,Innovation,Growth, Local and regional development, Equalization of opportunities, Economic power dissemination,

5 A) The entrepreneurial process: a systemic approach

6 Entrepreneurial development and local development It contributes to develop … Institutional platform (generates externalities) Business platform (it rejuvenates, diversifies, and creates firms critical mass) It generates jobs and channels of self-realization for the population (i.e.: young people) It develops endogenous capacities/local drivers. It increases the local appeal for extra-local agents.

7 Resources Personal Aspects The birth of a firm... Opportunities Motivation Capabilities New Firm

8 Resources Personal Aspects Networks... Towards and integrated approach Opportunities Motivation and Capabilities New Firm Education And Culture Productive Structure And Dynamic Factors Market Regulations Socio-economic conditions

9 Conceptual Framework The Entrepreneurial Process Inception Start-up Early Years  Acquisition of motivations and skills  Identification of the opportunity  Market entry  Firm management  Business planning  Resources  Final decision

10 Conceptual Framework The Entrepreneurial Process Inception Start-up Early Years  Acquisition of motivations and skills  Identification of the opportunity  Market entry  Firm management  Business planning  Access to resouces  Final decision

11 Culture and educational system Networks Personal Aspects FactorMarketsconditions Industrial structure and dynamism Inception Start-up Early years Regulations and policies The Entrepreneurial Development System Socio- economic conditions

12 A new generation of dynamic entrepreneurs Middle-class families Middle-class families University graduates University graduates  Entrepreneurial teams Start young

13 5 main initial motivations: 5 main initial motivations: 1. To achieve self realization 2. To put their knowledge into practice 3. To increase their income 4. To be their own boss 5. To contribute to society A new generation of dynamic entrepreneurs

14 The ventures Grow fast and become SMEs very soon (about 40 employees in the 6 th year) Grow fast and become SMEs very soon (about 40 employees in the 6 th year) Main clients: other firms in the domestic market Main clients: other firms in the domestic market Most important source of business opportunity: differentiation Most important source of business opportunity: differentiation

15 Key factors influencing the entrepreneurial process Technical knowledge (University)

16 Entrepreneurial competences (work experience) Key factors influencing the entrepreneurial process

17 Entrepreneurial teams Key factors influencing the entrepreneurial process

18 Projects profile Key factors influencing the entrepreneurial process

19 Networks

20 Bootstrapping

21 Networks Bootstrapping Projects profile Teams Entrepreneurial competences (work experience) Technical knowledge (Univ) Key factors influencing the entrepreneurial process

22 Typical negative factors Culture & social structure

23 Entrepreneurial competences (educational system) Typical negative factors

24 Institutional networks Typical negative factors

25 Links with large companies (industry structure) Typical negative factors

26 Finance

27 Culture & social structure Entrepreneurial competences (educational system) Regulatory framework Links with large companies Finance Typical negative factors

28 New enterprises in knowledge- intensive sectors Positive contribution to the economy: Positive contribution to the economy: More dynamic and innovative ventures More dynamic and innovative ventures Higher educational level of human resources Higher educational level of human resources Higher presence of entrepreneurial teams Higher presence of entrepreneurial teams But some structural obstacles: But some structural obstacles: Lower presence of role models Lower presence of role models Weaker learning contexts (university/work experience) Weaker learning contexts (university/work experience) Less developed specific networks Less developed specific networks Lower access to financial resources Lower access to financial resources

29 New enterprises in local areas Broader door to the entrepreneurial process Broader door to the entrepreneurial process Broader social origin Broader social origin More first-time entrepreneurs More first-time entrepreneurs Higher presence of role models Higher presence of role models More support from social networks More support from social networks But in some regions: lower dynamism But in some regions: lower dynamism More locally oriented networks More locally oriented networks More traditional activities More traditional activities Lower access to financial resources Lower access to financial resources More restricted to local market More restricted to local market

30 Role of entrepreneurs in technology based clusters The role of entrepreneurship in the emergence of TBCs is “often one of the least well documented, but most critical, elements of successful clusters” The role of entrepreneurship in the emergence of TBCs is “often one of the least well documented, but most critical, elements of successful clusters” Many of the factors that are identified as vital to cluster development (e.g. agglomeration economies, venture capital) lag rather than lead cluster emergence –outcomes of entrepreneurial activity rather than being causal. Many of the factors that are identified as vital to cluster development (e.g. agglomeration economies, venture capital) lag rather than lead cluster emergence –outcomes of entrepreneurial activity rather than being causal. Key questions: Key questions: –What drives the spin-off process? –Why does it only occur in certain locations?

31 Role of entrepreneurs in technology based clusters Proposition: entrepreneurial activity has been the central mechanism in the emergence of technology clusters (TCs) Proposition: entrepreneurial activity has been the central mechanism in the emergence of technology clusters (TCs) The essence of high-tech regions such as Silicon Valley and Route 128 “lies in their continuous ability to create firms” The essence of high-tech regions such as Silicon Valley and Route 128 “lies in their continuous ability to create firms” Existing firms are too preoccupied with their existing business and so under-emphasise the significance of new technology or are unwilling or unable to exploit them because it would involve cannibalising or writing-off much of their existing activities. Existing firms are too preoccupied with their existing business and so under-emphasise the significance of new technology or are unwilling or unable to exploit them because it would involve cannibalising or writing-off much of their existing activities. By exploiting new technological opportunities that existing firms either fail to recognise or resist, this entrepreneurial process results in an upgrading of the regional economy. By exploiting new technological opportunities that existing firms either fail to recognise or resist, this entrepreneurial process results in an upgrading of the regional economy.

32 Role of entrepreneurs in technology based clusters Evidence from ‘genealogical trees’ show the organizational origins of entrepreneurs Evidence from ‘genealogical trees’ show the organizational origins of entrepreneurs –Small number of organizations have been the source of a disproportionate number of entrepreneurs –This spawning sets off a self-reinforcing cycle »More start-ups »Enhancement of entrepreneurial environment: (i) successful entrepreneurs become mentors, investors, institution builders; (ii) specialized infrastructure is established, (iii) suppliers and service providers emerge, (iv) local universities develop courses and research to meet the needs of companies »Companies attracted from elsewhere »Within a couple of decades there is a sizeable cluster of technology companies

33 Role of entrepreneurs in technology based clusters Modeling the emergence and growth of TBCs Modeling the emergence and growth of TBCs –Seeds of the future cluster are put in place: investing in the research base –Emergence of a proto-cluster: a few pioneering individuals leave established organizations in the area to start their own firms –Emergent phase: increased level of entrepreneurial spin-offs in a narrow range of sectors; supportive ecosystem begins to emerge (finance, support, institutions), collective sense of identity emerges, early entrepreneurs begin to ‘recycle’. Now self- sustaining.

34 Role of entrepreneurs in technology based clusters –Fully functioning entrepreneurial environment: √spin-offs in a wide range of technologies; √local sources of venture capital, √wide range of customers and suppliers and specialized service organizations, √region-wide support networks, √universities and colleges offer specialized programmes; √a few of the early spin-offs will have become large; √MNEs will have a significant presence through acquisition and inward investment; √government is actively involved in supporting the cluster

35 How does it work the Entrepreneurial Development System in the South African countries?

36 B) Entrepreneurship promotion: Policy justification

37 ED policies on an international level... The number of countries that take on proactive strategies to encourage the creation of companies is growing, as is the range of policy areas to achieve this purpose

38 Justification: entrepreneurship and its contribution There’s a growing consensus about its contribution to economic and social growth, to the creation of work positions, to the strengthening of SMEs, to innovation (Audretch and Thurik 2001, Acs and Armington 2004, OCDE 2001, Reynolds and others 2001, Kantis and others 2002, Birch 1979, Schumpeter 1934) There’s a growing consensus about its contribution to economic and social growth, to the creation of work positions, to the strengthening of SMEs, to innovation (Audretch and Thurik 2001, Acs and Armington 2004, OCDE 2001, Reynolds and others 2001, Kantis and others 2002, Birch 1979, Schumpeter 1934)

39 Justification: Growing demand of entrepreneurial capabilities The demand of entrepreneurial capabilities grows: The demand of entrepreneurial capabilities grows: – To create a company (whether it’s a profit-driven or a non-profit company) or institution, – To face innovative initiatives in preexisting organizations, – To increase employment The concept of entrepreneurial society appears: a community in which the population is capable of generating initiatives and innovative projects in different spaces of action, and of adapting flexibly to changes in a world that’s more uncertain every day (Ministerie van Economische Zaken 2000, FORFAS 2007). The concept of entrepreneurial society appears: a community in which the population is capable of generating initiatives and innovative projects in different spaces of action, and of adapting flexibly to changes in a world that’s more uncertain every day (Ministerie van Economische Zaken 2000, FORFAS 2007).

40 Justification: to promote entrepreneurial development The existence of gaps between the desired behavior of the entrepreneurial development system and its effective operation. The existence of gaps between the desired behavior of the entrepreneurial development system and its effective operation. An effective functioning of the factors that form the entrepreneurial system cannot be reached only through the market (i.e.: the entrepreneurial education or the creation of an entrepreneurial culture in society). An effective functioning of the factors that form the entrepreneurial system cannot be reached only through the market (i.e.: the entrepreneurial education or the creation of an entrepreneurial culture in society). The existence of markets failures (i.e.: the presence of information asymmetries) makes the supply for entrepreneurs (i.e.: financial, consultancy services) to be inadequate. The existence of markets failures (i.e.: the presence of information asymmetries) makes the supply for entrepreneurs (i.e.: financial, consultancy services) to be inadequate. There may be barriers blocking the access to social capital (i.e.: a very hierarchical culture or social structure that’s too polarized). There may be barriers blocking the access to social capital (i.e.: a very hierarchical culture or social structure that’s too polarized). The entrepreneurs’ transactions costs are higher than the ones of established companies: an uneven competition. The entrepreneurs’ transactions costs are higher than the ones of established companies: an uneven competition.

41 Justification: to promote youth entrepreneurship Human capital is one the columns of entrepreneurial development: the entrepreneurial vocations and capacities are forged from early on. Human capital is one the columns of entrepreneurial development: the entrepreneurial vocations and capacities are forged from early on. Young people face major problems when trying to enter the labor market: a proactive strategy of entrepreneurial development can increase youth employment in a preventive way, contributing to a greater social equity. Young people face major problems when trying to enter the labor market: a proactive strategy of entrepreneurial development can increase youth employment in a preventive way, contributing to a greater social equity. Access to information on entrepreneurial options for young people is unequal (lack of information) Access to information on entrepreneurial options for young people is unequal (lack of information)

42 Justification: to promote youth entrepreneurship There are cultural barriers that block perception and identification of opportunities. There are cultural barriers that block perception and identification of opportunities. There is a gap between supply and demand of entrepreneurial capacities (they are not provided by families, the educational system, companies, or the market) There is a gap between supply and demand of entrepreneurial capacities (they are not provided by families, the educational system, companies, or the market) The development of entrepreneurial capacities is distributed unequally. The development of entrepreneurial capacities is distributed unequally. The are market failures (i.e.: financing, human resources) and transaction costs are more significant for young people (liability of newness, moral hazard) The are market failures (i.e.: financing, human resources) and transaction costs are more significant for young people (liability of newness, moral hazard) The social capital accumulated by young people is lower and, among them, it is distributed unequally. The social capital accumulated by young people is lower and, among them, it is distributed unequally.

43 VOCATION/MOTIVATION IDEA IDENTIFICATION PROJECT ELABORATION NEW COMPANY DEVELOPMENT Culture Market Failure Information about the entrepreneurial option Entrepreneurial human capital Tacit knowledge and information Technical Asistence Social Capital FinancingNetworks Financial Capital Institutional Capital Education The entrepreneurial process, market failures and policy areas entrepreneurial process DEVELOPMENT OF CAPACITIES

44 C) Typologies of policies and main areas

45 MOTIVATION IDEA PROJECT NEW COMPANY DEVELOPMENT Short term policies SMEs Policies Entrepreneurship Policies Policies Space Long term policies

46 Evolutional Perspective Extension of SMEs policies 80’s Policies for new firm creation 90’s Generic policies Niche policies Programs and institutions exclusively oriented towards assisting new ventures appear. Integrality. Directed towards creating companies in general Directed towards specific segments (of the population or of the companies)

47 Strategy types Niche policies People: social inclusion Firms: competitiveness Directed towards groups that are under represented in the population of entrepreneurs (women, young people) Directed towards creating new fast growing companies or technology-based. Extension of SMEs policies 80’s Policies for new firm creation 90’s Generic policies

48 Social Inclusion Generic entrepreneurship policies “Niche” entrepreneurship policies Competitiveness Entrepreneurship policies

49 Action areas q Promotion of the entrepreneurial culture in the population (USA, Taiwan, Canada, Sweden, Scotland, Japan) q Entrepreneurship education (Canada, Scotland, Finland, Holland, Australia, UK) q Simplification of the regulatory framework (Spain, Finland, Holland, UK)

50 q Improvement of the support infrastructure q One-stop shops (Holland, Finland, Canada, UK, Japan, Taiwan) q Online Portals (Ireland, UK, USA) q Mentoring and technical assistance (USA, UK, Australia, Ireland, Taiwan) q Incubators (Taiwan, Australia, Japan, USA, Ireland, UK) q Networks development (Taiwan, Holland, Australia, Scotland, Canada) q Access to seed capital and financing: public sources, development of private supply, bridges, investment readiness (USA, UK, Japan, Canada, Finland, Ireland) Action areas

51 Las 4 C del desarrollo emprendedor Human Capital Institutional Capital Social Capital Financial Capital Las¨ ¨ 4 C C ¨ ¨del desarrollo emprendedor The 4 “C’s” of the Entrepeneurial Development

52 Entrepreneurial Development Institutions “” Program “” Root“ Institution ” Program ” “ Beneficiarios Young firms University Students Graduates Technology Based firms Rapid growth firms Young people Third Sector (Fundations, non-gubernamental organizations Public Sector ( universities, R+D institutions Governments, incubators, colleges, etc. Private Sector (Banks, existing companies,Business chambers, Venture capital funds, investors, etc.) Institutional subsystem of entrepreneurial development Root Institution Root Institution Root Institution Root Institution

53 THE MISSION OF THE ENTREPRENEURSHIP SUPPORT INSTITUTIONS: REDUCING TRANSACTION COSTS BY NETWORKS DEVELOPMENT Human Resources Clients Suppliers $ Opportunities/ resources Technical assistance ?? Knowledge sources?? Training? Regulation s?? Business networks? ? Financing sources?? Contacts with entrepreneurs ?? Government instruments??

54 D) Generic policies? High growth policies? Dynamic entrepreneurship policies?

55 Just generic entrepreneurship? 1- Selecting potential high-growth firms is too difficult. 2- Venture capitalist are able to pick winners, with the inclusion of a considerable number of potential winners that turned out to be losers while public policy would seek to back all the winners and avoid any losers. 3- Start-ups in general deserve policy support, due to their seedbed function, unequal access to finance and information, their employment creation (still most of the jobs in the small business sector come from non high-growth firms), and their effect on regional prosperity in the long run 4- What is needed is an entrepreneurial culture that has effect on all layers of society: new firms, small firms, large firms, public organizations.

56 Or high growth entrepreneurship? … there are at least as many arguments in favor of targeting (potential) high growth firms: 1- It increases the effectiveness and efficiency of support measures. Focusing resources on a small group of ambitious entrepreneurs – i.e. where they are most needed and where they can produce the best results – is more effective than more generalized support. 2- It provides a clearer strategic focus on the needs of high growth businesses; high levels of expertise are more likely to be developed both in the public sector as well as in the related support fields (such as venture capitalists, bankers, and consultants). 3- In some countries more start-ups are not needed.

57 Dynamic entrepreneurship Dynamic company: Those that transform into SMEs (includes high growth but it is a broader concept) ≠ Vegetative micro enterprises Recent studies show that growth oriented entrepreneurs generate growth (Acs 2006, Jena 2007)

58 Dynamic entrepreneurship  In a few years less than 10% of the new companies (the most dynamic) generate half of the sustainable jobs UK, USA, Argentina: companies of at least 10 employees; 25 average by the third year

59 Dynamic entrepreneurship: % of companies at birth % of employment N years after % with IANGs <0,5% Dynamic Companies <10%

60 Dynamic entrepreneurship: the challenge % of companies At birth Challenge % with IANGs < 0,5% Dynamic Companies: <10%

61 Sustainability and dynamic entrepreneurship  Sustainable employment in long term Competitive Growth Innovation Dynamic entrepreneurship  Self-employment and micro by necessity: social net Does the “theory of the business agent” work?

62 E) Examples and lessons: key factors in the design and key factors in the design and implementation of policies implementation of policies

63 Some international experiences USA USA * Venture corps: retired businessmen (mentoring) * Entrepreneurship education (Kauffman Foundation) * Financing and promotion of innovation in a pro- entrepreneurial cultural context (SBIR, SBIC, SBDC, simplified loans) cultural context (SBIR, SBIC, SBDC, simplified loans) Italy and Brazil Italy and Brazil * Information, training, tutoring and financing * Incubation * The SOFTEX experience

64 Some international experiences Scotland: integrality, alliances and learning Scotland: integrality, alliances and learning * Diagnosis *Massive cultural campaign (PC, PES. LH) *Entrepreneurial education *Mentoring program *Incentives and support for the creation of entrepreneurship centers in universities centers in universities *Entrepreneurs’ network: entrepreneurial exchange *Promotion of financing via VC and angels networks *Financing via guarantee funds and simplified loans *Special programs designed to promote rapid growth companies companies

65 Some international experiences Germany (EXIST): Germany (EXIST): Fund for regional entrepreneurship strategies presented by alliances composed by universities and local partners Fund for regional entrepreneurship strategies presented by alliances composed by universities and local partners Grants for the development of entrepreneurial projects and coaching in marketing and finance Grants for the development of entrepreneurial projects and coaching in marketing and finance Keim model based on the formation of capacities, the link of investigation with potential entrepreneurs, technical assistance to the process, network development Keim model based on the formation of capacities, the link of investigation with potential entrepreneurs, technical assistance to the process, network development

66 Some international experiences Chile (Chile Innova): Chile (Chile Innova): 2 lines of seed capital for innovative projects (less than 18 months): Prefeasibility and start up 2 lines of seed capital for innovative projects (less than 18 months): Prefeasibility and start up Institutional platform providing support to those entrepreneurs receiving seed capital Institutional platform providing support to those entrepreneurs receiving seed capital Creation and strengthening of incubators Creation and strengthening of incubators

67 Main lessons There are no single recipes Initiatives differ in strategic scope, budget, and geography Knowledge about the initial conditions is crucial Adoption of strategies with a systemic approach based on institutional value chains is needed If there is no overall strategic framework, ex post actions must be taken to coordinate efforts Mix (generic and niche) initiatives are possible and necessary (i.e: young, growth oriented, innovatives…)

68 Role models dissemination to foster entrepreneurial vocations (cultural change) Role models dissemination to foster entrepreneurial vocations (cultural change) Entrepreneurial competencies promotion through the educational system (but in connection with the business world) Entrepreneurial competencies promotion through the educational system (but in connection with the business world) Widening the space of opportunities to start a dynamic business (i.e.: innovation) Widening the space of opportunities to start a dynamic business (i.e.: innovation) Main lessons

69 Development of networks and teams Development of networks and teams Improvement of the business environment and financing Improvement of the business environment and financing Training, consulting, and advisory programs appropriate to the profile and demands of entrepreneurs and new ventures Training, consulting, and advisory programs appropriate to the profile and demands of entrepreneurs and new ventures Main lessons

70 There must be an appropriate institutional setting, or when it is weak, it must be strengthened There must be an appropriate institutional setting, or when it is weak, it must be strengthened The commitment of the private sector and civil society is key for sustainability The commitment of the private sector and civil society is key for sustainability The intervention style should itself be entrepreneurial The intervention style should itself be entrepreneurial Main lessons

71 »The State must take the role of a second floor, delegating direct support to specialized and decentralized institutions (private, mixed, foundations, chambers, etc) »It is very important that alliances with other institutions are created, to generate a system of entrepreneurial development that brings integrative support to the entrepreneurs. »Alliances with the communication media must be included »A flexible strategy demands an evaluation and learning system

72 Thank you !


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