Elite Educators Idolize “High Flying Entrepreneurs” While Deluded about the Realities of Entrepreneurship for the Masses

Educating South-East Asia’s rural population to develop ideas and create new business models with appropriate technologies

“You say it best when you say nothing at all” – Ronan Keating

The writer was lucky enough to be invited to a premier entrepreneurship “talkfest”, the 11^th International Entrepreneurship Forum (IEF) held in Kuala Lumpur 3-5th September.

The IEF was founded in 2000 and holds an annual forum in different international locations each year. It has been previously been held in Istanbul, France, Latvia, China, and South Africa, supported by the OECD and Local Employment and Economic Development Program (LEED).

As an observer, the “franchise” appears to be like a club for a number of elite “hobnob” academics who discuss and showcase high profile success stories.

This year the keynote speaker espoused traditional American neo-liberal values, claiming the practice of philanthropy as a major contributor to the American success story.

All agreed upon the forum platform that entrepreneurship was important for economic growth and employment[1], a claim that appears to have suspect, or at least research showing the contrary. This sheds some doubt over the validity of this belief[2].

After the conference, like many colonial masters in the past, the premier British Business School left the local servant “franchisee” business school with an empty cupboard as they “jetsetted” onto their next destination.

This was a tragedy, as the forum could had been a great opportunity, but was missed by this elite group as a chance to consider and provide some input and guidance into the real problems facing entrepreneurship within the region. At least this was one of the hopes and aspirations of many of the local participants.

Instead of taking opportunity to examine regional issues, entrepreneurship was glorified in what could be argued as a presentation of a distorted reality of what actually exists on the ground.

What may be considered the most important issues facing entrepreneurship within the region are the very issues that the forum did not cover in almost a form of denial.

The aim of this of this article is to bring some attention to these issues and briefly summarize their impact upon the phenomenon of entrepreneurship within South-East Asia, and particularly Malaysia.

A number of issues need addressing, and forums as important as the IEF are few and far between in the region, and could have made a large contribution to a better understanding of the challenges facing entrepreneurships here in this region.

Most forums run across the region like the former seem to be slanted and biased by the agendas of the organizations running them to the point where we have lost objectivity about the subject.

Does entrepreneurship really contribute to innovation, employment and economic growth? – “I’ve been through the desert on a horse with no name” – America

On the first day of the conference, the Malaysian minister for rural and regional development Datuk Seri Mohd. Shafie Apdal in the opening speech affirmed the government’s focus upon entrepreneurship as a perceived engine of growth for the economy. However the assumption that entrepreneurship contributes to economic growth, and the “how” of it, is an issue that is yet to be fully understood and debated.

Entrepreneurship does not always bring innovation and as a consequence does not necessarily contribute to economic growth. Entrepreneurs are far from the heroes of capitalism as Alfred Marshall suggested[3].

The majority resemble the survivors of capitalism, in no way achieving the espoused freedom and empowerment often associated with the rhetoric of entrepreneurship. Entrepreneurship does not necessarily drive economic evolution, and it is questionable whether entrepreneurship is a major source of innovation.

There are a multitude of media pieces and books on ‘high tech’ entrepreneurship giving the impression that the majority of entrepreneurial start-ups are of a technology nature. In fact Global Entrepreneurship Monitor’s (GEM) own data shows that most start ups occur within the service and retail industries[4].

In addition the vast majority of start-ups in 54 surveyed countries were of a non-innovative nature[5]. There is very little innovation involved in the majority of firms.

In another piece of research, it was found that over 70% of business founders felt that their start up efforts were unsuccessful[6], and consequently ceased operations after the first few years. Only a minority of these businesses are developed with new business models, the focus of the forum, that enhance value like what Ray Kroc did to Burgers or Kemmons Wilson did to motels.

To understand what types of opportunities people exploit, one must look at how people find opportunities. It appears that very few people actually formally scan the environment for opportunities. If people did, they would not start-up in industries with high competition and low profit margins, like the majority do[7].

An opportunity, or more specifically and an idea to exploit what is seen as an opportunity evolves within a framework of time, place, prior knowledge, and motivation, requiring creativity to connect everything together. The subjective nature of opportunity makes it impossible to separate the concept from an individual.

Therefore opportunity has a deep basis within one’s personal prior knowledge, experience, personal aspirations, imagination, and fear of uncertainty. Consequently most new ideas have a basis in some old idea, something seen or experienced in the past[8]. Therefore most people have a natural inclination to imitate others employing no innovation whatsoever.

Most people see an idea somewhere and duplicate it somewhere else, with or without modification. The average start-up is something mundane like a sandwich bar, cafeteria, coffee shop, computer repairer, some form of retail outlet, a service supplier to other business, or small manufacturing operation[9].

They have seen something, feel the concept could work in a particular place for them, have the skills, capabilities, resources, networks, and are motivated enough to pursue the idea.

Other studies show that almost half of new businesses within the United States are home based and less than 5% graduate beyond this level after a five year period[10]. In Australia the home business rate is almost 70% of all businesses[11].

The reality is that most new businesses formed employ existing technologies and create no new technologies at all. Although so much entrepreneurship literature focuses on high tech start-ups, these types of firms are only a very small percentage of new firm start-ups.

The Global Entrepreneurship Monitor Thailand Executive Report states that the prevailing form of entrepreneurship in Thailand is opportunistic. However most of the entrepreneurial ventures in Thailand are small and focus on the consumer service sector in retailing, restaurants, and personal services, such as health and beauty services[12].

Like the rest of the region, these businesses are the prime source of income of most entrepreneurs and operated for the purpose of earning a living. Local entrepreneurs select an activity that is very locally orientated suggesting that they are opportunistic in the limited sense of the word.

There is little, if any value created by these ventures[13].

Entrepreneurship creates less employment than many people think[14]. Self employment in the United States has been declining for decades and in 2003 was 7.0% of the total workforce[15]. Self employment in OECD countries has steadily declined from 1996 to 2006, with the OECD average declining from 19.2% to 16.5%[16].

From data provided by the Global Entrepreneurship Monitor 2011 Global Report it can be seen that less than 2% of firms in most countries expect to provide more than 20 jobs, about the same percentage 5–19 jobs, with the overwhelming majority of firms expecting to employ between 0–4 people[17].

According to another piece of research most entrepreneur incomes are lower than what they would earn working for someone else, with less benefits[18], with longer hours of work[19].This is logical given that most entrepreneurial ventures enter into highly fragmented, localized markets, with no source of competitive advantage.

Not only is the average entrepreneur earning less than their salaried counterparts, but income is spasmodic. Income varies from day to day, week to week, month to month, and year to year.

Consequently there is a good chance that a person and their family will drop down into a lower socioeconomic group during their tenure as an entrepreneur[20].In developing economies many owner operator firms are seen as part of the marginal informal economy. Due to this factor entrepreneurship may actually inhibit the growth or even decrease GDP per-capita.

There is also little chance that an entrepreneur will be able to sell his or her business and make any substantial capital gain. Therefore many countries over the next few years will face the problem of how to support elderly populations with little means to survive. On the whole, starting a business will make a person and their family relatively worse off than if they were working for someone else.

Most SMEs have a low propensity to export. The SMEs active in export tend to be the larger ones employing over 20 people[21]. According to Global Entrepreneurship Monitor data there is a low level of firms exporting, particularly in the factor driven and efficiency driven economies of South-East Asia.

Countries where overseas customers make up less than 10% of a firms customer base include Bangladesh, Guatemala, Venezuela, Iran, Brazil, China, Argentina, Russia, Mexico, Thailand, Malaysia, Barbados, Trinidad & Tobago, Columbia, and Peru.

Due to the low profitability of SMEs there is little reinvestment thus insuring that firms remain with a low technology base. As a consequence very few SMEs transform into something bigger and better in the future.

This can be attributed to SMEs entering non-attractive, low growth industries, resembling the present mix of industries, i.e., no product and economic evolution[22], high levels of competition, competing on price[23], using resources inefficiently[24], and haphazard management[25].

Most new enterprises do not last very long. The life expectancy of about half the new enterprises formed within the United States is approximately 50%, with 30% lasting up to ten years[26].This situation is very similar all around the world.

It is not difficult to understand these high rates of failure when the majority of new firms seek to compete in highly fragmented markets with heavy competition, where the market environment provides very low profitability levels. In addition, 80% of new products fail after being launched[27], although this sometimes takes some time to acknowledge.

Other products may partially fail and not generate enough revenue, provide sufficient level of consumer satisfaction, or return on investment[28]. Many new firms are particularly vulnerable because the strategies founders select to exploit opportunities do not create any new value within the competitive marketplace.

These casualty statistics would not be acceptable to any military general on the battlefield, nor would the low success rate be acceptable to any college football coach.

With these images of SMEs the concept of Schumpeter’s ‘creative destruction’ is not apt here. It is more a case of ‘enterprise stagnation’ with SMEs having undifferentiated products, locked in small fragmented markets with little ambition for growth and marginal income ability.

How the above issues concern South-East Asian economies is of upmost importance to both policy makers and educators. Although the data presented above may come from diverse sources, appear fragmented and situational, debate about the benefits of entrepreneurship to the economy is an overdue one, especially in the South-East Asian region.

Within the Malaysian scenario some 78% of all enterprises within the economy are sole traders. An additional 19% of existing enterprises employ less than 4 persons per enterprise, indicating the SMEs actually contribute little to the growth in employment.

Many policy planners have incorrectly developed their economic strategies towards entrepreneurship as a vehicle of development. As competition is price based and doesn’t add value to the economy, employment other than the proprietor is rare, and most of the pursued opportunities don’t require value adding strategies.

Other than replicating someone else’s idea, there is no increase of economic diversity and entrepreneurship actually tends to reallocate income rather than add value to the economy.

The rural crisis and developing ideas – “Born on a farm in a transatlantic moonlight
split like a cord of wood my family broke up” – Lou Reed

We are entering the second decade in this new Century much of the Asia-Pacific region is suffering a rural crisis. Within the ASEAN region 361 million or 58% of the total population reside in rural areas. Economic and social inequality is increasing between the rural and urban population. Rural population have fewer opportunities due to the limited economic resources and markets available to them.

Disadvantages include, remoteness from urban markets, the high cost and deterioration of transport services, poor access to services, lack of private and Government investment, high susceptibilty to natural disasters such as floods and droughts, and environmental pressure upon the eco-system due to illegal activities such as logging.

As governments are focusing on building infrastructure in urban areas due to the very rapid urban population growth, at the expense of the rural areas, many rural areas are lagging further behind in national development unable to benefit from the high levels of growth in the region.

Lack of rural investment is leading to higher rural unemployment rates where a large percentage of the rural youth population are leaving to the cities for job opportunities[29].

This leaves an aging farmer population in rural areas with low education levels, resources and capital. In some parts of the region, there is a feeling of powerlessness, with a lack of ideas, opportunities and matching skills, so very few are willing and able to embark upon new ventures[30].

This situation is not assisted by the inequality of educational pathways between rural and urban youth[31].

Creating new business models – “I painting a room in a colourful way and when my mind is wandering there I will go” – The Beatles

A business model provides the integral innovation that creates value around any idea. The innovation encapsulated within a business model is much more implicit. The combination of structure, content and processes contain the innovation in a much more subtle way than the traditional views of innovation would have it.

A strong case can be made that it is the business model that any entrepreneur applies to an idea that enables the viability of any venture which in-turn creates the form and value that differentiates the enterprise from competitors.

The same basic product concepts commercialized through different business models will bring different degrees of success or failure. It is the business model that orientates a business locally, nationally, or regionally, defining it as a micro-enterprise, SME, or large business organization.

The type of business model an entrepreneur can employ is heavily influenced by external factors in the environment like regulation and competition. Business models also have a geographic, cultural and historical influence.

The business model may reflect upon the personal strengths and weaknesses of the entrepreneur. He or she should have the availability of finance, personal skills and abilities, competencies and capabilities, be able to build networks, personal vision, and possess a realistic perception of self efficacy and locus of control.

The key to any business success is probably related more to the business model employed than the business plan. Business models are tangible and should be adaptive while business plans tend to promote rigidity based upon early guessing about what may happen to the enterprise once it starts up.

With the large variance in the quality of education, population densities, degree of remoteness, and local infrastructure, there are great differences in the way different communities perceive opportunities. This is a factor that anchors a community to a level of affluence, usually low, contributing to relative poverty.

Thus in South-East Asia there are great discrepancies that can be seen between regions with those in most need being areas like Sabah, Sarawak, Perlis, and Kelantan in Malaysia, the Muslim dominated provinces in Southern Thailand, and parts of the North-East of the country, rural Laos, Burma, Vietnam, and Cambodia, and many of the Islands of both the Philippine and Indonesian archipelagos.

If entrepreneurship is to be a tool in regional development, then the concept of creating value through new business models must be taught to communities. This is where the OTOP (One Tambun One Product) programs have been appealing to policymakers throughout the region, although this has not been found to be the complete answer in bringing diversity and means to earn income.

While major cities may have well equipped schools, the primary and secondary education system throughout rural South-East Asia are generally starved of resources, personnel and lack and creative orientation within the learning curriculum.

It is perhaps the ability to be creative that is most critical for people being able to see, discover and construct novel business models that can serve their interests in creating a livelihood above relative poverty lines and create value within the community.

Lack of sufficient resources could potentially inhibit the ability of rural people to scan for opportunities and exploit them in the next generation.

Developing the ability to be creative within rural communities may go much further in providing opportunities for rural populations than what existing programs have achieved, and this is worth discussion and debate.

Discussion and exploration is required to create new community and entrepreneurship development models which can positively assist rural people so that new ventures can be created upon value. Future infrastructure should tend towards providing knowledge rather than physical infrastructure.

Holistic integrated value concepts need to be created around rural centres that identify and create themes and branding to these regions from where a cascade of industry from tourism to manufacturing, and services can spring up to benefit from these new centres of value.

There should be an emphasis on developing supply/value chains that small enterprises can utilize and benefit from rather than “brick and mortar” facilities. Strategy rather than infrastructure is required which is a much different approach to the traditional building of infrastructure and moving on to the next project.

However this paradigm shift requires changes in agency competencies and capabilities, needing coalitions composed of advertising agencies all the way to local university researchers and community members themselves as the champions.

Developing appropriate technology – “Johnny come lately. New kid in town” – The Eagles

One of the major issues facing ventures within the region is technology. Business and entrepreneurship courses around the region primarily ignore this issue, making an argument that entrepreneurship education should be domiciled in other faculties.

Most entrepreneurs have little access to technology and lack any resources to develop new innovations within a business[32]. As a consequence very few SMEs transform into something bigger and better in the future.

This can be attributed to SMEs entering non-attractive, low growth industries, maintaining the present mix of industries, i.e., no product and economic evolution[33], with high levels of competition, competing on price[34], using resources inefficiently[35], and haphazard management[36].

With the above images of SMEs the concept of Schumpeter’s ‘creative destruction’ is not apt here. It is more a case of ‘enterprise stagnation’ with SMEs having undifferentiated products, locked in small fragmented markets with little ambition for growth and marginal ability to earn income.

Traditionally academic research and development has been ad hoc and aimed towards creating journal and conference papers, and winning medals at exhibitions. Very little research ends up as workable prototypes that any enterprise or the community can utilize.

From the institutional viewpoint there is little push to engage the community, and from the industry viewpoint there is little interest in university based research. Consequently there is very little market driven or needs based research undertaken.

In most cases industry has great difficulty in taking up indigenous technology because it is generally unfinished. According to Tan Sri Dr Yusof Basiron, the CEO of the Malaysian Palm Oil Council (MPOC), local researchers have difficulty scaling up from prototype and pilot scale to industrial scale, thus inhibiting technology transfer[37].

This places Malaysia behind countries like Indonesia and Thailand in indigenous innovation and adaptation even though this problem has been known for a long while.

True innovation in the case of rural entrepreneurship is achieved through scaling down technology to appropriate levels that allow exploitation by the community. This is often harder to do than scaling up. In addition scaling down is counter-intuitive to contemporary Malay culture where grandiose ideas and solutions to problems are espoused in preference to simple solutions.

This highlights the urgent need to evaluate the dysfunctional aspects of the national culture that may actually inhibit the achievement of national aspirations.

Technology and innovation is a ”hot topic” in entrepreneurship, but too much emphasis has been placed on amassing technology, rather than using amassed knowledge to create new technology through emergent thinking. This has important national consequences as Dr. Asma Abdullah states that there “is also the tendency for Asian countries, including Malaysia, to deal with the issue of values in development by importing many technologies and systems wholesale from abroad without going through the process of mental transformation necessary to master them fully. Although Malaysia is going through rapid transformation, our growth is one without development in the context of knowledge contribution to science, engineering and technology. As long as we are consumers and operators of sophisticated techniques, plants and technologies imported wholesale from abroad, we are to a certain extent undergoing a technology-less form of industrialization. This transformation of values and attitudes is a key issue in the nation’s development agenda”[38].

One of the best sources of competitive advantage is being able to deliver technology in an inexpensive, useable, and locally sustainable form. The lower capital requirements lower the barriers to enterprise entry for rural communities into new product portfolios, while at the same time creating new barriers to entry for others.

A lesson can be learned from some of the Japanese companies which have been able to successfully compete on cost with their Chinese competitors. Japanese companies have been able to build their own plant and processing equipment at a third of the cost of the Chinese[39], who purchased their equipment from third party vendors.

The Japanese have realized that this is a source of competitive advantage and are able to continue to export from a much higher cost base because of substantial capital savings. This is certainly a lesson for entrepreneurship development in Malaysia.

Appropriate technology is the key to creating new value in regional South-East Asia. However due to the non-technical background and orientation of entrepreneurship educators, trainers, and policy makers, the role of technology is understood but the technology itself is not.

This weakness is compounded by local educators uplifting curriculum from courses delivered in post industrial society, believing that these are relevant to the local region. Post industrial society entrepreneurship education is very much service industry orientated due to the demographics, where the developing region of South-East Asia needs to be more agricultural and manufacturing based.

This is a major reason why entrepreneurial education has not contributed much to growth and development of a diverse base of entrepreneurs. A new model is badly needed.

After factor exploitation within a developing economy, it has always been technology that plays the role as catalyst in transforming society to higher levels of prosperity. These lessons have been lost on policy planners. Entrepreneurship without the development of new appropriate technology is a recipe for policy failure.

All the wrong assumptions – “I think I better think it out again” The Fagin (Oliver)

Stories about highly successful growth companies like Apple, Google, and Yahoo, etc., are told and retold so many times that one begins to believe that this is the norm rather than the exception. This is the ‘entrepreneurial growth myth’, the idea that firms need to grow into large firms in order to survive.

This ‘grow or die’ syndrome has been perpetuated by business schools around the world, making many small businesses feel pressured to seek expansion and strain the stability of the enterprise[40].The proprietors of small or micro SMEs are often branded as un-ambitious failures with little relevance to society and considered part of the informal economy in developing countries. We live in a society that generally equates success with size[41].

However most small businesses have no more than one employee[42], and not more than two over the first five years of operation[43]. Within Southeast Asia, South Asia and the African experience, start-ups of small business are primarily domicile based and serve the local community with food, service, or repair type businesses[44].

These firms usually serve very fragmented local customer bases with little prospects for growth beyond a subsistence income. These micro-enterprises are the primary source of income, where members of the family do extra jobs to supplement income. There is little ambition above ‘making a living’ for the vast majority.

The predominating narrative is that of ‘survival on a day to day basis’, where there maybe some medium to long term financial goals such as providing education for the children, or buying a small house. This desire for economic independence has been a ‘draw card’ to many of the urban areas in Asia and Africa where potential opportunities are greater than rural areas[45].

In addition to the lack of intention to grow a business there are a number of constraints that inhibit most enterprises from growing beyond a minimal size.

The first constraint is lack of capital to grow a business, which appears to be a universal problem across all countries. Most forms are started with a person’s own savings rather than being financed externally, through family, friends, or formal lending through a financial institution[46] – another misconception about the nature of entrepreneurship.

Many enterprises only generate cash-flows that are only positive enough to pay immediate overheads and a meagre income, leaving little available funding for future growth. The funding of SMEs through external finance is more myth than reality[47]. Ironically business schools apportion a large percentage of their curriculum on business models that rely upon external financing.

The second reason that inhibits growth is that most businesses have been founded upon an imitative opportunity that resembles another business and consequently has no source of competitive advantage other than its location (important in retail), or the personal services and relationships the founders develop with customers and clients.

The average entrepreneurial start-up has no intellectual property in the form of proprietary knowledge, trademarks, registered designs, or patents. Most of these firms are run by the founder who has little time or resources available for the firm to undertake any research and development. As a consequence most SMEs are deficient in technology.

From the product and market perspective most firms follow other firms with product and marketing, rather than innovate strategies[48]. Therefore the only tools that can be utilized to differentiate products and the firm from others is through extra features, servicing selected customer groups that are too expensive for existing firms to service, or by discounting.

The third reason that inhibits growth is that most firms enter into fragmented industries where growth is very difficult. The more decentralized an industry, the easier it is to enter, but generally speaking the lower will be the profitability, particularly if there are low barriers to entry.

It is extremely difficult to expand the business of a sandwich bar, restaurant, launderette, ironing service, secretarial service, or employment service, without a major investment and possible duplication of the business in another location, i.e., like McDonalds, KFC, or Pizza Hut. The lack of capital and competitive advantage discussed above compound the problem of expansion in fragmented industries.  

Finally, most proprietors of SMEs do not undertake any formal planning process. There is very little evidence of strategic thinking in many SMEs surveyed[49], which may be related to the need of proprietors to engage in most, if not all of the tasks required in running his or her business.

In addition, personal goals are often intertwined with business goals, where the wish for autonomy, personal satisfaction, and lifestyle are more important than business performance of the enterprise[50].

The reality is that most firms have very little intention to grow[51], yet business schools work and teach on the assumption of high growth entrepreneurship, another myth perpetuated at the forum. This contributed to the misguided perceptions and images about entrepreneurs just like we have developed misguided perceptions and images the shape of the human body through media advertising and glorification.

The myth of growth has created inappropriate methods and content of knowledge delivery. It is not the business school that is going to be the vanguard of entrepreneurship development but the vocational school.

The words of E.F. Schumacher should not be forgotten, “To equalize rural-urban affluence requires a great effort of imagination;….Systems of ideas and values that suit relatively affluent and educated city people are unlikely to suit poor, semi-illiterate people. Poor people cannot simply acquire an outlook and habits of sophisticated city people. If the poor cannot adapt to the methods, then the methods must be adapted to the people”[52].

Conclusion – “Nothing wrong as far as I can see. We make it harder than it has to be. I can’t tell you why” – The Eagles

The most interesting issues concerning entrepreneurship in South-East Asia today were ignored, swept under the carpet in favour of the high growth success narrative. This is potentially damaging to potential entrepreneurs in endearing images that the majority cannot emulate or even dream of conforming too.

The International Entrepreneurship Forum may be guilty of creating the “Miss World syndrome” were a person may feel inadequate because they cannot match the proportions of the contestants. Perhaps a lapse of their moral responsibility as researchers and educators.

After the forum, corruption and nepotism still hinders the creation of any ‘level playing field’ for entrepreneurship to flourish upon. Excessive regulation and licensing allows only selective entrants into industries and bumps up start-up costs. Malaysia today may have a business friendly environment, but definitely not a market friendly one.

Entrepreneurs, particularly within Malaysia where the forum was held still face direct competition from State Economic Development Agencies which intervene into the market directly as operators.

Many within the economy are advantaged through “inside information” and obtain business through their relationships with decision makers. Tendering processes are far from transparent, the education system lacking creativity in an intolerant society that according to Richard Florida stifles innovation[53].

Yes the most interesting and critical issues to the development of entrepreneurship and possibly the economy were left unsaid. One of the critical issues in the development of South-East Asia is getting the right advice. Entrepreneurship is more a narrative about survival and subsistence, than growth and glory.

This issue is very urgent as the rural-urban divide is growing. One can see some of the consequences of this within current Thai politics, but this problem could spread to the rest of the region if not addressed properly.

 

 

Prof. Murray Hunter

Sharing is caring!