Future of Asian Tiger economies lies in reviving entrepreneurship
By Ali Beba
Entrepreneurship is at a crossroads in East Asia. The former Asian Tigers have turned largely to technological innovation, constantly reinventing consumer goods and gadgets at ever-lower prices. Business innovation the creation of wealth in new ways is retreating, pushed on by generational change in populations and at the helms of once dynamic corporations.
There is an urgent need to revive the spirit that drove entrepreneurs in East Asia to create an economic powerhouse of the region. At stake is the prosperity that is all too often considered permanent.
In an era of corporations spanning the globe it is well worth reminding ourselves that small business drives the world economy. Take Hong Kong as a regional example. Rightly perceived as an international finance centre and host to multinational corporations, 98 percent of the city’s companies are micro-enterprises with less than 50 employees. Further afield in the United States and European Union, the entrepreneurs who propel small companies generate up to 90 percent of economic activity and as much as 85 percent of all jobs.
Who are these people? A common misconception is that entrepreneurs are pure risk takers, the reckless gamblers of commerce. Nothing could be further from the truth. Successful entrepreneurs are strategists, calculating the extent of risk and acting when the circumstances are favourable. They are not satisfied with simply having jobs. Instead they use their initiative and imagination to generate breakthrough products and services.
Entrepreneurs are seed planters, not bean counters.
We can most easily identify entrepreneurs driven by opportunity. They predominate in developed economies and have become very visible in China. Yet there are also those driven simply by need. Consider the poor Bangladeshi woman who has to feed her child. She takes a $50 loan, sells milk and grows a business driven by pure necessity. Both types of entrepreneurs have one fundamental goal: to create wealth.
Whether social or monetary, wealth is at the very centre of the entrepreneurial spirit. Micro-credit has created social wealth throughout Asia, changing lives for the better through such institutions as Muhammad Yunus’ Grameen Bank. Monetary wealth has more obvious manifestations, such as in the rise of the Chinese middle class.
Yet, wealth can be transitory. East Asia’s population is ageing rapidly, which has the potential to restrict economic growth. In Hong Kong, for instance, 12.8 percent of the population was aged over 65 in 2009, but by 2039 that figure will increase to 28 percent. With a reducing labour force, productivity will decline and entrepreneurs will be needed to create and innovate.
So far, so good opportunities should abound. The problem is that the environment for fostering entrepreneurialism in the region is good but by no means great. In economies where entrepreneurialism has reached its peak, such as the United States, it takes only a day to start a company. The average in OECD countries is 5.7 days. In China and some other Asian countries it takes up to a month and involves multiple government agencies.
R&D is also limited throughout the region, with most innovation driven by foreign investors, and there are few incubation centers where entrepreneurs can benefit from clustering.
In the former Asian Tigers Hong Kong, Singapore, South Korea and Taiwan there is an additional problem. Family businesses predominate, with often less than ideal succession planning, governance and financing. Taken alone, the generational change at the helm of once entrepreneurial corporations is causing concern. Not all children have the acumen or incentives of their parents. Very few family businesses survive to the third generation.
As the economies of East Asia, including China, become freer, problems such as these will proliferate. In places with limited land, most notably Singapore and Hong Kong, “me too” investment in real estate by family businesses intolerant of failure has the potential to create economic bubbles that could burst at any time.
Obviously, this must change, and quickly. Family businesses have the responsibility to reform themselves through professionalization and independent management. Governments, too, can play a role by developing adequate and enforceable frameworks in such areas as corporate governance and the protection of intellectual property rights.
The tertiary education sector also has an obligation to revive the flagging spirit of entrepreneurship in the region. The Hong Kong University of Technology _ placed sixth in the Financial Times world MBA rankings _ has recently revived its business plan competition. Now expanded to include social business, the Entrepreneurship Challenge is not restricted to business students alone. All students, faculty, staff and alumni can be involved.
In the efforts to revive entrepreneurship in East Asia, no reasonable direction should be left unexplored. Our prosperity, and our future, could well depend on it.
Ali Beba is presently an Adjunct Professor of the of the Hong Kong University of Science and Technology (HKUST) Business School, and Associate Director of the Center for Asian Family Business and Entrepreneurship Studies.