Study: U.S. Startup Activity Down Slightly In '06

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On Jan. 9, Babson College and the London Business School released their eighth annual Global Entrepreneurship Monitor [GEM] study , which surveyed over 100,000 people in 42 countries and pointed to a very slight decline in U.S. enthusiasm for starting businesses, coinciding with an increase among emerging economies in Asia and South America.



In the U.S., the percentage of nascent entrepreneurs [those who were thinking of or have recently initiated an entrepreneurial venture] fell from 12.4% last year, to 10%. Germany, France, and Britain also experienced slight declines in early-stage entrepreneurship. By contrast, in China, early-stage entrepreneurship rose to 16.2%, from 13.7% from last year, and in Argentina, the number rose to 10.2%, from 9.9%.



But Maria Minniti, professor of economics and entrepreneurship at Babson and GEM's research director, says that although nascent entrepreneurship is slightly down, the number of established entrepreneurs is slightly up. "From the point of view of economic analysis, there is nothing to worry about. There's no sign of slowdown in entrepreneurial behavior in the U.S.," she says.



Emerging Entrepreneurs

Nascent entrepreneurialism is booming in the emerging economies of India and China, among others. In China, the study found that 70% of the Chinese surveyed think entrepreneurship is a good career choice; and 32% expect to start a business in the next three years. The scenario is similar in India.



The rates of entrepreneurialism and innovation in emerging economies are exploding in order to fill demand for specialized products and services from larger players, says Paul Magelli, scholar-in-residence at the Kauffman Foundation, a Kansas City [Mo.]-based organization promoting entrepreneurship. "There are so many established joint ventures [in the emerging economies] There's a whole layer of emerging secondary industry -- a colonization of specialization around major players," says Magelli, who sees the trend being shared among emerging economies like China, India, and Brazil [see BusinessWeek.com, 12/29/06, "Five Megatrends for Asia in 2007"].



Early-stage entrepreneurial activity is generally highest in poorer countries with lower levels of gross domestic product, where many startups are formed because there are no better alternatives available to earn money, says Minniti. To illustrate, early-stage entrepreneurial activity is highest in Peru, at 40.2%, and lowest in Belgium, at 2.7%, according to the study.



U.S. Job Creation

Even though entrepreneurship may have declined slightly in the U.S. in 2006, the study pointed to its benefits, including success among small businesses in creating new jobs. U.S. entrepreneurs have created most of the 6.8 million new jobs in the nation since 2003, according to the study [BusinessWeek.com, 1/3/07, "Open Doors Wider for Skilled Immigrants"]. "These entrepreneurs are young [under 35], educated [52% with one or more degrees], and continue to choose the entrepreneurial, opportunity-driven lifestyle over more stable -- and frequently more lucrative careers," said a press release for the study.



A more detailed study of the entrepreneurial climate in the U.S. is due to be released sometime this spring.



GEM is an annual assessment of entrepreneurial activity designed to measure differences in the level of activity between countries, to uncover influencing factors, and to identify policies that may enhance entrepreneurial activity. The project was started in 1999 by researchers at Babson College and the London Business School with 10 participating countries, and today has university-based researchers in 42 countries.