Panos Caribbean, 10 October 2012 – Three quarters of all start-ups are not making it to the stage of established businesses, according to the Global Entrepreneurship Monitor (GEM) 2011 report for Barbados. It indicates that, in the island, the percentage of businesses continuing beyond the early stage was only 25 per cent. Under GEM, established businesses are those that have been in operation for more than three and a half years.
GEM tracks the percentage of the 18-64 years-old population who have discontinued their businesses within the last 12 months. The report measures entrepreneurial activity among participating countries, which numbered 54 in 2011. Barbados is the third country in the Caribbean following Jamaica and Trinidad and Tobago to join the global research project. In the region, Colombia is also a participant.
Facts revealed by GEM 2011 indicate that among the 18-64 population, 40-60 per cent of all discontinuations were linked to financial difficulties such as having an unprofitable business or problems getting finance.
Personal reasons, such as illness, bereavement and other relatively unfavourable events in one’s personal life, were highlighted as the second key reason for business discontinuation in Barbados.
“This accounted for approximately 40 per cent of the respondents, which is above the global average report by GEM of between 20-30 per cent,” the report states.
Lead researchers were Ms. Marjorie Wharton and Dr. Donley Carrington of the Cave Hill School of Business (CHSB), University of the West Indies. The Barbados Report was launched at CHSB on Friday October 5.
Among the policy recommendations of Wharton and Carrington is a focus by government and support institutions on developing high growth businesses.
They note in the 2011 report, “much of the emphasis presently is on looking at self-employment and on providing individuals with a means to start a business that will ensure they are not unemployed or waiting on others for employment. However, there needs to be a slight shift into creating businesses that can grow over a five year period and generate upwards of twenty jobs during that period. These kinds of enterprises are often high income generators and lead to significant growth in the economy.”
Barbados has a low level of entrepreneurs who are focusing on growing their businesses to the extent that they will be employing five or more people in five years’ time, the researchers state.
“Rather it appears that the majority of Barbadian entrepreneurs are more interested in keeping their enterprises relatively small over the next five years.”
Under the total early entrepreneurial activity (TEA) phase of GEM which runs from zero up to three-and-a-half years, medium-high job expectation TEA (MHEA) describes those entrepreneurs who expect to employ at least 5 people besides the owner(s) in 5 years’ time; and Solo and Low Job Expectation TEA (SLEA) describes those who expect to employ less than 5 people in 5 years. The MHEA rate for Barbados is below the average for efficiency driven economies. Barbados’ rate is 2.8 and the average is 4.7.
“These rates are important since they suggest that entrepreneurs in Barbados are more interested in remaining self-employed or perhaps employing a few of their friends and family in their enterprises. However for there to be a greater impact on job creation and significant increase in output levels, as well as the potential to develop businesses that cater to non-domestic customer demand, there need to be more enterprises with owner managers that have high expectations for growth,” Wharton and Carrington assert in their analysis.
For most of the efficiency driven economies – among which Barbados is categorised – the rate of established businesses is relatively low, only four being more than 10 per cent. Thailand is the only participating economy where the percentage of established firms is higher than the level of early stage entrepreneurial activity.
The researchers suggest that greater attention and investment also be poured into research and development and developing mechanisms that support the inventors in getting their creations into viable income generating enterprises.
For the island, the portion of early stage entrepreneurs and established business owner managers who operate in new product markets were 16.8 per cent and 9.6 per cent respectively.
“This result indicates that early stage entrepreneurs tended to be more likely to report new product market creation than established business owners. The 9.6 per cent rate for established business owners suggests that their major focus was not in creating products that are new to all or most of their customers,“ the researchers note.
They quoted from the WEF’s Global Competitiveness Report for 2011 which has identified Barbados as an economy that is transitioning from the stage of being an efficiency driven economy to the third and higher stage of being innovation driven.
Factor Driven economies are defined as those that are dominated by subsistence agriculture and extraction businesses with a heavy reliance on labour and natural resources. Efficiency Driven economies are those with an increased reliance on economies of scale, with capital-intensive large organizations being dominant. Innovation Driven economies -those where businesses are increasingly knowledge intensive and the service sector is expanding.
Wharton and Carrington state “The data show that Barbados has strong basic requirements for competitiveness (i.e. institutions, infrastructure, health and primary education) and fairly good efficiency enhancers (i.e. higher education and training, goods market efficiency, financial market development, labour market efficiency and technological readiness).
“However there are some specific areas which need to be addressed, i.e. market size and macroeconomic stability and the areas of business sophistication and innovation need to be developed.”
Among the policy recommendations made is that specialised focus be placed on the requirements to move forward along the trajectory of an innovation driven economy.
“This will require greater attention and investment into research and development as well as developing mechanisms that support the inventors in getting their creations into viable income generating enterprises,” they note.
The main sponsor of GEM in the Caribbean is the International Development Research Centre (IDRC) of Canada which helps researchers and communities in the developing world find solutions to their social, economic, and environmental issues.
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