High growth oriented entrepreneurs – or GOEs - in both developing and developed economies have a strong potential to drive economic growth, finds global research from Delta Economics, undertaken for ACCA (the Association of Chartered Certified Accountants).
The results in High growth SMEs: understanding the leaders of the recovery show that despite the recession, GOEs in BRICSA countries - Brazil, Russia, India, China and South Africa – have been able to develop and grow a company, while those in the West, including UK, France, Germany, Spain, the Netherlands, Italy, Belgium and the USA have also shown the ability to expand and prepare for sustainable growth.
However, the UK faces strong competition from BRICSA countries as well as its Western neighbours, especially as Chinese growth businesses are by far the biggest in the survey, with an average turnover of $4.13 million in the last full year of trading and a median growth rate of 453% since start-up. This compares to UK business’ relatively impressive 176% growth since start-up, which is the fastest in the West.
Building a compelling picture of entrepreneurial optimism, the research examines the challenges and difficulties encountered by GOEs, and warns that governments, institutions, banks and professional advisors need to pay careful attention to their needs now and in the longer term.
Dr. Rebecca Harding, CEO of Delta Economics, says: 'Fast-growth entrepreneurs provide many benefits to economies and governments from creating direct employment, to paying tax revenues, to growing exports, and so stimulating the economy. These modern businesses are likely to be kind to the environment, possibly even as a ‘green’ business; they consider themselves generous to employees and work with their local communities. They need support from governments from creating the right regulatory and tax environment to ensuring that the people they recruit have the skills needed to work for these entrepreneurs.'
Rosana Mirkovic, head of global SME Policy at ACCA, adds: 'UK respondents registered most concern over the macro-economic climate (63%), maintaining profit (65%) and domestic competition (57%). But the UK displays a determination that is echoed in other GOEs around the world. The research shows that global entrepreneurs have proved their determination and resilience to build their dream business - taking support and funding from wherever available. BRICSA entrepreneurs in the emerging economies face the same challenges, concerns and opportunities as their peers in developed markets and have shown remarkable strength in achieving superior growth rates. These businesses and others that will follow them are the engines of growth, which will take the global economy out of recession. Accountants need to match this optimism and dynamism, and continue to be trusted advisers to these GOEs.'
The report shows that the UK GOE is facing a tough global environment:
- International drive: Given the UK economy’s slow or negative growth, UK GOEs are looking elsewhere for growing markets – some 60% of UK GOEs showed evidence of some international activity including marketing or selling overseas, sourcing materials, seeking finance and partnerships, or some element of ownership.
Internationally oriented businesses grow faster than domestic only, with the UK sample showing that the international businesses that establish themselves as ’domestic only’ first grow faster.
Three-fifths of UK and European GOEs showed evidence of being international, while in the US it was the opposite with three-fifths domestic only and from BRICSA entrepreneurs were just under 50% international.
- Motivations: Entrepreneurs are motivated by four things: following a dream; taking advantage of a market opportunity; getting autonomy over their time and ‘making a lot of money’.
In the UK, like all countries, ‘following a dream’ is the most or second most important factor in setting up a business, with over one-half of respondents listing it. Only in Russia was this below 50% (at 41%), but even here it was the third biggest motivator. ‘Taking advantage of the market opportunity’ was important (over 75%) in the US, China, Brazil and Germany, and ‘wanting to make a lot of money’ was a strong driver in the US, China and Brazil (over 70%) but less so in Germany at 51%. While most other countries reported ‘making money’ as significant, to Italians (3%) and Spaniards (18%) it seemed to have little motivational value.
- Growth expectations: GOEs are modest about expectations in the next three years for growth in turnover, however the UK and US stand out in the West, with expectations of 60% and 57%, respectively. Others expect growth of 50% or less, with Germany at only 25%. Brazilians are most optimistic, expecting to double turnover in three years, while Chinese are looking for 75% growth and South Africans around two-thirds.
- Access to Money: Entrepreneurs in the survey obtained between 60 - 80% of initial finance from self-investment, most of which came from savings or from personal borrowing. Even in countries which have lowest self-invest rates, they have the highest levels of investment from family or friends. In other words, GOEs get the most of their initial finance from within their inner circle and very little from external or official sources. Banks need to work harder to support these businesses at the start-up stage especially as the survey found that the key factor for turnover growth is the total amount of initial investment when starting up the businesses.
- Seeking advice: Of prime importance to any entrepreneur is the advice they receive on setting up a business. Within Europe, only the British (27%) and Germans (21%) discuss plans with work colleagues, and marginally more consult personal friends - 32% UK, 27% Germany, 26% the Netherlands, and Italy only 7%. China tops the list on 74% for consulting friends and 43% for work colleagues. European and US GOEs were much more likely to seek professional advice at the start-up stage than were similar entrepreneurs in BRICSA. As the business develops, professional advice is sought and is seen as a positive influence in all the countries and is actually rated higher in the BRIC countries than it is in the West. Finding these businesses at an earlier stage might provide an interesting market opportunity for professional advisers.
Rosana Mirkovic concludes: 'UK entrepreneurs are following their dreams, and seeking opportunities, despite the current jittery economic conditions. But continued and sustainable success depends on government policy creation and intervention, especially as entrepreneurs also inevitably see the macro economy as a major challenge. Although all governments would no doubt argue they were facing that challenge, the entrepreneurs would suggest that creating the conditions - stipulated above – would go some way to allowing them to lead the way out of recession through innovation, exports, new job creation and ever faster growth.'
Other highlights from the report:
- On being an employer: The UK lags behind Germany when it comes to being an employer – Germany is Europe’s biggest employer, with on average employing four people when starting, compared with two in the UK and France, and three in Italy.
- Gender: Of those interviewed from the UK, 17% are female, along with France and Italy, and Germany 15%, but Belgium leads the way at 21%. The US scored higher, with 22% being female entrepreneurs, higher than their European counterparts. The proportion of female entrepreneurs in Spain is surprisingly low at just 9%, while on the global stage China scores highest at 26%.
- Age: The average age of high growth entrepreneurs is lowest in China at 35, compared to 46 in the UK, Germany and France. The average age of growth entrepreneurs in the US is one of the highest globally at 50; although Belgium has the highest average at nearly 52.
- Obstacles: All respondents saw the macro-economic climate as a major obstacle, while maintaining profit and cash flow were a problem for most. Taxation ranged as negative from 39% to 74% in the EU countries, with the UK and US above 50%. Brazil (61%), Russia (68%) and South Africa (41%) also saw this as a major negative issue, though Chinese business was essentially neutral and Indian entrepreneurs (62%) saw their tax system as a positive. Recruiting people with the right skills and training was a major challenge in the UK, as well as in Germany, Spain and South Africa where 40% saw this as an issue.
- Being innovative: Growth firms in Brazil, China and South Africa stand out in all areas of innovation, with Brazilian (55%), Chinese (71%) and South African (47%) companies being more likely to have invested in R&D than their counterparts in the US (41%) and Germany (22%).
About the report
- High growth SMEs: understanding the leaders of the recovery report asks and attempts to answer several questions. How have growth oriented entrepreneurs fared during the global recession? What are the challenges faced by and sources of motivation for these entrepreneurs? What growth strategies do they adopt (including sources of finance and advice)? What are the main drivers of growth? What are the differences in and between the major European and US economies and those in the fast emerging markets of the BRICSA (and the corollary, where are they similar)? The implications of these findings for governments, financiers and advisors are then considered in terms of what support entrepreneurs need to build sustainable companies.
- The report examines the data from the Delta Economics ‘Challenges and Opportunities for Growth and Sustainability’ (COGS) surveys of entrepreneurs in BRICSA countries, (Brazil, Russia, India, China and South Africa), in the US and in Europe (UK, France, Germany, Italy, Spain, Belgium and the Netherlands) conducted between October 2010 and December 2011. The entrepreneurs run relatively young businesses (between 2 and 10 years’ old) and have turned over a minimum of $300,000 after the second year of trading. They are therefore ‘growth oriented’ and have survived the economic and financial traumas of the past four years.