I’ve been very busy lately, and consequently lagging on my writing. I have several drafts that are taking more time to come together than anticipated. That being said, a distraction for me is staying current on some great conversations around entrepreneurs. This post came across my desk, and I thought it should be shared. Maria Minniti of the Cox School of Business wrote: Women Entrepreneurs: How they Fare Across the Globe and Why which I found a terrific read and I hope you share my enthusiasm.
Across the globe
The study of women entrepreneurs reveals new trends. Over the period 1975-1995, female self-employment grew by 60% compared to only a 20% increase for men. Recent data from the Center for Women’s Business Research showed that, between 1997 and 2002, women in the United States have formed new businesses at twice the national rate. The Global Entrepreneurship Monitor (GEM) project, a program of study about entrepreneurs world-wide, has shown a significant amount of female startup activity around the globe.
In countries with low levels of economic output (GDP), entrepreneurship offers a way out of poverty. As GDP grows, women may find more work options in large manufacturing or businesses serving large companies; they find more stable employment and may opt out of entrepreneurship. In countries with higher GDP, people may have the resources to go into business for themselves and the environment that allows for exploiting opportunities. Also women’s employment choices are shown to be more sensitive to the local environment than those of men. Minniti notes that some components are evolutionary, having to do with role of the family. “As long as we are the ones who are giving birth, it doesn’t matter if they [women] are from the U.S. or China – there are certain constraints.”
The majority of female entrepreneurship tends to be more visible and effective when connected directly to the improvement of living standards. Across the world though, women in richer countries are starting an increasing number of businesses with high economic potential and in high-tech sectors, in which women are traditionally under-represented. “The lack of women in high tech revolves around training and education issues,” Minniti explains. “In the past, women have not sought out engineering and sciences degrees. But that is changing.”
Motivation is an important factor in the decision to start a business. According to the 2005 GEM data, more than 97 percent of the respondents are involved in entrepreneurial activities out of two primary reasons – opportunity and necessity. Opportunity entrepreneurship reflects the desire to take advantage of an entrepreneurial opportunity when employment alternatives are available. From the GEM study of 2005, nearly 25% of women choose entrepreneurship out of necessity versus nearly 20% of men. The number of women who choose entrepreneurship because of necessity is concentrated in low-income countries. Thus, for women, entrepreneurship may represent an important means of circumventing unemployment and, in some countries, a way out of poverty.
Women in low-income countries start businesses out of necessity often because of the lack of employment in the formal labor market. Women in high-income countries start businesses in high paying fields even when other job options are available or as a life-style choice, owing to their high educational attainments. Women in countries with per capita income between $10,000 and $25,000 prefer employment over self-employment. Interestingly, among the countries considered in the sample, the highest rates of female business owners are found in Thailand and China, and this mirrors similar findings with respect to male entrepreneurs. The lowest rates are found in Mexico and South Africa. Nonetheless, female (and male) entrepreneurship is riskier in poorer and growing economies.
Countries which have healthy and diversified labor markets or stronger safety nets show a more favorable ratio of opportunity to necessity-driven women entrepreneurs. Minniti says, “In lower income countries, relatively more women choose entrepreneurship out of necessity. When countries grow, the level of schooling and other benefits such as health care improve. Women find easier job alternatives and there are opportunities to work in large established companies or the public sector with a more structured environment with known hours.” In low-income countries, the rate of opportunity entrepreneurship is 1.7 times that of necessity entrepreneurship; in middle-income countries, the rate of opportunity entrepreneurship is 3.8 times that of necessity. Opportunity entrepreneurship in high-income countries is six times that of necessity entrepreneurship. For example, in Iceland for every woman motivated by necessity, there are 18 women involved in starting a new business because of opportunity.
A Peace Dividend
In 2006, the Nobel Peace Prize was awarded to Muhammad Yunus and his Grameen Bank for the reduction of poverty achieved through women-led microenterprises in Bangladesh. The Grameen Bank gives microenterprise loans to more than 7 million poor people, 97% of whom are women, across 73,000 villages in Bangladesh. Grameen focuses on women because it found that giving loans to them yields higher benefits to families and local communities. The standard monetary collateral (that poor people could never provide) is replaced by “reputational” collateral. Because of their stronger ties to local communities, women are more responsive to reputational collateral.
In addition to the reduction of poverty, however, female entrepreneurship has been linked to the emergence of peace. Yunus recognized that poverty is a threat to peace and believed that improving the lives of the poor a better strategy than spending on weapons. Since Adam Smith’s 1776 book “The Wealth of Nations,” the linkage between peace and entrepreneurship has been clear. Minniti points out that the particular link between peace and female entrepreneurship is being appreciated only very recently and that it could represent a very significant source of stability in some of the most unstable areas of the globe.
Entrepreneurial Tendencies
Several empirical studies suggest that differences among countries in entrepreneurial activity can be explained by cultural and/or economic factors. Comparing entrepreneurs and managers from the United States and China, researchers found that the attitudes and values of both American and Chinese entrepreneurs were more closely aligned with the American culture and values than with the Chinese. Others have argued that new firm creation is not just about economics but it is embedded in a specific culture. Generally, a positive association exists between freedom and entrepreneurial activity.
For women in low and middle-income countries, the peak years to become involved in entrepreneurial activities is age 25-34. In high-income countries, the peak years are ages 35-44. In richer countries there seems to be a tendency for older women to get involved. Opportunity startups in richer economies are more likely to require more education, experience, and better networking.
Regardless of country, the majority of women (and men) involved in starting a new business hold other jobs. Self-employed women have either very short or very long work weeks. A first group includes women who enter self-employment to take advantage of time flexibility and combine work and family commitments; the second group includes women who enter self-employment to promote their careers and their income streams.
Countries with high women’s entrepreneurial activity also reveal more positive responses concerning the existence of opportunities. The perception of opportunities is influenced by the environment in which people live and work, and the task of new business formation requires personal perseverance and self-confidence. Studies in the psychology literature stream have established the importance of confidence in one’s skills and ability for entrepreneurial behavior.
Women are more risk averse than men, and it varies across countries. Women in all countries in the GEM sample (except Japan) report fear of failure more often than men. For example, 41 percent of men in both Argentina and Germany state that fear of failure would prevent them from starting a business; women make that statement more than men in both countries. However, the gender gap is much more pronounced in Germany than in Argentina (54% versus 48% of women, respectively). Women in middle-income countries, on average, tend to be more skeptical of starting a new business as a viable income producing activity.
Ties that Bind
Entrepreneurs do not act in a vacuum. Both male and female entrepreneurs rely on role models and social networks for information and access to resources. Thus, it is important to note that women, on average, seem less networked than men and, in some cultures, have access to fewer social resources. Not surprisingly, men’s networks included very few women, whereas women’s networks were more likely to include men. Minniti surmises, “We need both male and female attributes in business. Women are very strong at negotiating, achieving goal-congruence, and consensus-forming.”
The networks women rely upon operate quite differently from the networks men rely on. Thus, the position of the woman entrepreneur within the larger community is important because it affects her ability to observe role models and to acquire resources. Women in low-income countries often have significantly smaller networks and less geographical mobility. They construct relatively personal but strong social ties that allow them to partially substitute these personal network relationships for formal legal contracts. In general, women seem to forge egalitarian coalitions and long-term relationships based on emotional ties, whereas men tend to form hierarchical coalitions and short-term relationships based on mutual interest and weak ties. “Women are organization builders because we build communities,” Minniti states. “and that in itself is invaluable..”
Importantly, social capital is a robust predictor for the likelihood of starting a business and for advancing successfully through the start-up process. A study of Ghana, for example, suggests that female entrepreneurs tend to have more difficulties in accessing bank financing but they compensate by cultivating social relationships and using the social capital as a resource-leveraging mechanism.
Family considerations matter more for women’s entry into self-employment than men’s. Women see entrepreneurship as a way of achieving a better balance than that provided by wage labor, offering more time flexibility and more options to balance work and family. Given that women may choose self-employment to balance work and family, earnings across genders is more sensitive to differences in family size among the self-employed than in formal labor markets. The gender gap in entrepreneurial earnings may be partially explained because of differences in the types of businesses men and women start. Also women businesses tend to be mostly in consumer-oriented sectors which offer less pay than technology and services where men businesses are predominant.
Ventures of choice
Women entrepreneurs measure success in terms of self-satisfaction, which is of greater importance to them than financial profitability and growth. Several studies have confirmed independence and personal freedom, security, and satisfaction to be more important for women than financial performance. Women and men have fundamentally different socialization experiences that result in the development of unique capabilities; their strategic choices are shaped by these experiences.
Studies showed that women-owned businesses had fewer initial resources and were launched on a smaller scale. Women were also more likely than men to develop strategies that emphasized cost efficiency and profitability. On average, men owned businesses are twice as large as their female counterparts. Smaller size and slower growth rates are often perceived as problems, and it is assumed that women would want to expand their businesses if they could. However, much of this cross-gender variation is due to differences in sectors, family issues and life-style choices. In low- and middle-income countries, women are more highly represented in consumer-oriented business activity. Alternatively, women in high-income countries have higher numbers in business services.
Overall, women’s businesses show many of the same patterns as those of their male counterparts with respect to innovative and competitive potential. The majority of women’s businesses offer products or services that are not new to customers. Most women entrepreneurs say that they expect to face many competitors in their market. This share is even higher for established women business owners (65.5 %) than for early-stage women entrepreneurs (49%).
In conclusion
The study of how institutions promote or discourage female entrepreneurship is particularly needed for its policy implications. As the paper makes clear, the study of female entrepreneurship, with all its implications for society, is mainstream. Minniti concludes, “More important, it is to be hoped that, with more understanding, women all over the world will enjoy conditions in which their entrepreneurship may flourish.”
The monograph “Gender Issues in Entrepreneurship” by Maria Minniti, Bobby B. Lyle Chair in Entrepreneurship at SMU’s Cox School of Business, is forthcoming in Foundations and Trends in Entrepreneurship.
(Select topics from Dr. Minniti’s comprehensive paper were edited by Jennifer Warren.)
Notes:
(1) Low-income countries are defined as having per capita income of less than $10,000 and in this sample include Brazil, China, Hungary, Mexico, South Africa, Thailand, and Venezuela.
(2) High-income countries in the sample include the U.S., U.K., Austria, Scandinavians, Iceland, Japan, Germany, France, and Canada.
(3) Countries in this category include Argentina, Chile, New Zealand, Singapore, and Spain.
In a previous post, I identified some of the advantages of using ratios to help gauge the health of an organization, including understanding how your organization compares not only to industry averages, but against the best you are up against. The results may provide insight into areas of improvement, and areas where the company appears to have the advantage. However, with every analysis comes the caveat to make sure you are truly comparing oranges to oranges, and not tangerines to oranges.
The benchmark covers six professional service segments: hardware and networking; software and SaaS, systems integration, managed services and management consulting. [source: ASPI Resesarch] I found the news release on the study here. If your company was in professional services and you wanted to compare your numbers, these results might be a good place to start, and these measurements are good indicators. However keep in mind that rarely does one size fit all – know where you organization may deviate from the ones being studied as there may be other factors that could impact the results such as geographical differences, cultural differences, company size, client size.
