Can Entrepreneurship really be a solution to poverty
According to the World Bank (2008) 1.4 billion people in the world live in poverty. Even if the poverty level has remarkably decreased over the last years especially in Asia (East and South), strategies and plans for fighting poverty remain the main topic of social and economic debates because many regions worldwide are still experiencing severe poverty. For example, Caribbeans and Latin America are still facing slow economic development and poverty reduction. Likewise, since 1990, poverty decrease in Sub-Saharan Africa has fallen a long ways behind the other regions and seems to have no improvement with more than 42% poverty rate (Chen 2008; World Bank 2008).
Of course, it can not be denied that poverty is also a problem in developed countries. For instance, in the US, more than 37 million people are poor (The Guardian, 2017)
The numbers are higher in Europe with around 79 million people in extreme poverty (World Bank, 2009 ). Therefore the fight against poverty has become the main aim of the Millennium objectives for development (UN, 2009). In this circumstances, entrepreneurship is emerging growingly as a possible solution to reduce poverty (Kimhi, 2009).
“Entrepreneurship is defined as an activity that involves the discovery, evaluation and exploitation of opportunities to introduce new goods and services” (Venkataraman, 1997:2). That said, is being entrepreneurial a social and economic solution to poverty? Even so, are the current trade and business conditions ripe for global and local entrepreneurs?
Despite factual evidence highlighting a link between poverty and entrepreneurship, the number of conducted studies focusing on the connection between both is very low (Amores, 2015) and there are divergent opinions about entrepreneurship being a solution to poverty. On one hand, entrepreneurship is seen as a solution because within favourable conditions, it has provided jobs and contributed to economic development in developed countries. On another hand, it seems to fail to be effective in developing countries because the conditions seem not
Is being entrepreneurial a social and economic solution to poverty
What does being entrepreneurial means?
First, being entrepreneurial is not just about coming up with a business (Casson, 1982). Entrepreneurs are people who can see opportunities where other people don’t see. Therefore, you can be entrepreneurial even if you are working for someone, “with the buzzword intrapreneurial highlighting the desire of employers to have adaptable, flexible employees who can think for themselves” (Enterprising Oxford, 2018).
Second, entrepreneurship is before all a mindset. Timmons (1989), McGrath (2000), Spinelli (2007), and (Borchers, 2010) highlighted the unique factors that differentiate entrepreneurial leaders from conventional management in key components and some attributes central to entrepreneurs behaviours: determination, obsession for an opportunity, risk takers, creativity, motivation to excel, and courage.
Lastly, it is a process as illustrated by Bygrave (2004):
This mindset goes through different processes that shape the behaviours of the entrepreneur toward himself, the environment and the organization (Bygrave, 2004). For example, the environmental factors highlight the “influence the local environment has on the willingness of the entrepreneur to open a business” (Nassif, et al 2009: 217). This makes the entrepreneurs approach problems differently by focusing more on the opportunity development within the problem rather than the problem itself. But how exactly is entrepreneurship reducing poverty?
Over the last ten years, Entrepreneurship has turned out to be progressively imperative in driving social and economic improvement in the world (Nassif, et al 2010; Storey, 2004). However, these effects are efficient only in developed and high-income countries (Tang and Koveos, 2004).
A social and economic solution in developed countries
From 1990 to 1994 American small businesses those employing less than 100 people, created somewhere in the range of seven and eight million new employment (Nassif, et al 2010).
Besides being a huge wellspring of job creation, small businesses are likewise an incredible hotspot for development (Bygrave, 2004). In the USA, they utilize 39% of all cutting-edge specialists and deliver multiple times a bigger number of licenses per worker than bigger organizations (Nassif, et al 2010). So in the USA, Small businesses are in charge of around 40% of the Gross National Products, offering job for 53% of the worker in the private sector (Bygrave, 2004). They are in charge of making 75% of new employment; and make 67% of youth enter the work environment.
Furthermore, Small businesses are becoming increasingly significant in the economy of Brazil(IBGE, 2005a). They represent 99.2% of the total number of business, more than 57% of the total jobs generated, and 26% of the salary mass (Nassif, 2010). The exponential increase in the number of small businesses has resulted in increasing the salary mass of more than 57%.
Nevertheless, there are still many ventures that are not successful in Brazil and the main cause is the lack of managerial skills ( SEBRAE, 2005; as cited in Nassif, 2010 );
And the scenario is worse in developing countries where despite the high rate of entrepreneurship poverty remain higher.
A bounded solution in developing countries
According to Shane (2009), “if you want to ﬁnd countries where there are a lot of entrepreneurs, go to Africa or South America”(Shane 2009: 143). Meaning even though the highest percentage of people engaged in entrepreneurial activities are in developing countries, the poverty rate is the highest in those countries with 42% in Sub-Saharan Africa, compared to the low rate of 1.6% in Europe and Central Asia (World Bank, 2018). These statistics show that entrepreneurship is not being effective enough and this lead to a critical question: do entrepreneurs all have the same impact on social welfare and economic improvement?
Naudé (2007) and Singer (2006) argued that not all entrepreneurial ventures give rise to economic growth and also, economic development consisting of creating more wealth does not necessarily lead to poverty reduction.
Additionally, Amoros and Cristi (2011) stated that many entrepreneurs in developing countries become entrepreneurs by necessity, and most of them are in the informal sector with less education and therefore their activities have a very low impact on economic growth.
Furthermore, in developing countries, necessity entrepreneurship come from policies that lead to low investment and productivity and very high unemployment (Caballero,2006); that’s why Naudé (2007) qualifies these entrepreneurs as survival entrepreneurs and their activities have not or have very low impact on economic growth.
For example, Uganda which is the world’s most entrepreneurial countries with 28.1% of the population being entrepreneurs, 34.6% of the population lives on less than $2 (World Bank, 2016). Similarly, Nigeria which is among the biggest entrepreneurs has 61% of its population in extreme poverty (BBC, 2012). Additionally, Angola, the 6th most entrepreneurial country with 12.4% of its population being entrepreneurs fall under a poverty rate of 48% (OPHA, 2008)
In short, seeing that entrepreneurship is more impactful in reducing poverty in developed countries than developing countries, it is clear that “entrepreneurial behaviour changes direction from one economy to another in a manner that corresponds to the variations in the rules of the game” (Baumal, 1990). However, survival entrepreneurship is not automatically useless in poverty reduction, because these types of entrepreneurs play a positive role in improving social welfare and reducing poverty even though there is no impact on economic growth (Amores & Cristi, 2011) Consequently, necessity entrepreneurs should not be neglected because they can build a bloc of significant productivity activities in the future given that their small businesses provide many resources to ameliorate the human capital for future generation (Ibid)
And plus, given the various progress in technology and international trade agreements, aren’t the conditions ripe for global and local entrepreneurs? In clear, the current conditions (PESTLE) are factors that can improve entrepreneurship ability to eradicate poverty.
Even though there are some issues limiting local entrepreneurship, current business conditions look favourable for global and sometimes local entrepreneurs.
Firstly, the rise in the enthusiasm of several States and governments nowadays in entrepreneurial ventures linked to technology and innovation and trade facilities seems to be favourable for entrepreneurship (Nassif, 2010)
For instance, the investment in African technology startups has broken the record of $560m 2017 according to (CNN, 2018) and more than 314 technology hubs have been built to provide affordable basic need such as offices, electricity, internet and other facilities to make business development easier.
This show governments are enthusiastic about entrepreneurial ventures and are willing to invest a huge amount of capital on because entrepreneurship has shown how it can drive important social and economic transformations in people daily life. The most common example is Apple which is the world’s biggest company with a market cap of 926.9 billion USD in 2018 (Statista, 2018); the company was a venture of two young American driven by their passion in technology.
Secondly, with the concept of globalization and the development of Information and Communication Technologies (ICT) international trade and other types of exchange of goods and services have become easier ( Mwangi, 2016). In fact, that propitious environment has created huge opportunities for small-scale businesses and especially for entrepreneurs to acquire new markets and break-even more easily (Vitez, 2018). For example with the development of e-commerce, entrepreneurs and small-scale businesses have the opportunity to showcase their products to a massive audience in a short amount of time with a scale budget which was also was not feasible before. A platform like Amazon.com, Alibaba.com, eBay give to local entrepreneurs access to markets all over the world (Mwangi, 2016). The conjunction of all those favourable global and technological environments allow entrepreneurs to lower their operation and marketing expenditure. Indeed, social media advertisement on sites like Facebook and Linkedin are way cheaper than traditional media advertisement (Forbes, 2017)
Thirdly, another key favourable factor is the rising trends in the venture capitalist industry. In 2015, the Venture Capitalists market around the world consisted of $128.5 billion (Alvarez, 2017), and this funding pattern has proved its popularity in so many countries (ibid). Consequently, The easy access to fundings is triggering the massive growth and enthusiasm in the entrepreneurship world.
Nevertheless, the biggest issue with venture capitalist funding is that it’s mainly focused on investing on software sector and also according to Alvarez (2017) “Half of the Venture capitalists investments in software sector have taken place in San Francisco, representing 25% of the investments”. This unequal repartition of investments for entrepreneurs constitute today the main problem for local entrepreneurs to flourish.
Lastly, nowadays, humanity is experiencing so many complex problems whose immediate resolution will determine the future. The problems of global warming, pollution, human overpopulation and urban warfare are among the great challenges that humanity must solve as soon as possible and according to Kumar (2017), entrepreneurship is seen as the main solutions to solve those big challenges faced by humanity. For instance, SpaceX is creating innovative rockets to make easier and cheaper space exploration (Spacex, 2017). Elon Musk, the entrepreneurs beyond the project planned by 2025 to establish a human colony on Mars; that will be an innovative way to handle the overpopulation and the problem of lack of resource. However, current business conditions have some limits.
Condition not always favourable for local and small businesses
In some part of the world especially in the sub-Saharan Africa entrepreneurs face various impediments linked to governments regulations: high taxation, corruption, political instability etc. According to the Global Economic Forum (2015), “African entrepreneurs face some of the world’s toughest business conditions”.
Opposed to developed countries which have good governance, ease of doing business (Canada, Australia, Denmark), developing countries have more struggle to be successful in entrepreneurship because of the lack of basic needs: education, electricity, political instability, corruption etc.(ibid)
Additionally, poverty cannot be alleviated by only focusing on social or economic entrepreneurship as there is a need for collective action between government and people. The competitiveness of big companies is not favourable to small businesses because it causes a real struggle for small businesses to capture market share and also makes recruitment process hard as they have to increase the wage to attract applicants (ibid) The power of big companies in developing countries especially in Africa where the monopoly power of multinationals plays against the development of local enterprises as well as the phenomenon of acquisition characterized by “acquihire” concept kills many startups each year (ibid)
In conclusion, it is true that entrepreneurship is one possible solution to poverty especially looking at the progress it has made in developed countries like the USA and Brazil. However, looking at developing countries with the highest entrepreneurial activities but also the highest poverty rates, example: Uganda, Nigeria and Angola, it can be said that entrepreneurship is not being efficient enough in developing countries and this is due to some issues like lack of education, funding, corruption, war etc. However there is still hope for entrepreneur to survive and contribute in reducing poverty because the current business environment mainly, political, economical, and technological are making businesses easier. Still the conditions remains hard for local and small businesses due to financial and market share weaknesses.
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