Role of entrepreneurship in national economic development

EXCEL International Journal of Multidisciplinary Management Studies
Vol.2 Issue 4, April 2012, ISSN 2249 8834
Online available at http://zenithresearch.org.in/

ROLE OF ENTREPRENEURSHIP IN NATIONAL ECONOMIC GROWTH
A COMPARATIVE ANALYSIS OF INDIA & CHINA
PROF. AMIT GUPTA*

*Doctoral Student,
National School of Leadership,
Pune, India.

ABSTRACT

Both India and China have made rapid strides in economic development in terms of GDP and per
capita income ever since their respective liberalization era in 1978 (China) and 1991 (India), this
impressive growth in manufacturing (China) and services (India) is inextricably linked to the
level and type of entrepreneurial activity as seen from the reports of GEM (Global
Entrepreneurship monitor). Countries with similar per capita GDP tend to exhibit similar levels
of entrepreneurial activity, while significant differences exist across countries with different per
capita GDP levels.

While political systems and history of independence and social revolutions have left an
everlasting mark on development of entrepreneurship in both India and China, the ability of
institutions in the political, financial, educational and social framework to learn and unlearn from
the lessons of free market developed economies is of great significance in the constantly
changing business landscape fuelled by global imbalances, trade liberalization, financial markets
integration and of course the information explosion unleashed by the internet and wireless
connectivity.

It is significant that China has evolved from the clutches of centralized government economy to
relative market economy culminating in their joining the WTO in 2001. India with its pluralistic
democracy has always had a history of entrepreneurship limited to certain communities like the
Marwaris and Parsis who more recently have been upstaged post 1991 liberalization by
entrepreneurs of all hues who have capitalized on the opportunities thrown open by
globalization, like the first generation Bhartis, Ambanis, Ranbaxy, not to forget more modern
professional entrepreneurs like N.R.Narayana Murthy, Azeem Premji et al who have taken
advantage of the knowledge economy and labour arbitrage opportunities thrown up by www.zenithresearch.org.in
demographic discrepancies and made India a force to reckon with in the software services
outsourcing space. The issue now is can they really scale it up and move up the value chain by
breaking the nexus between revenue/profitability growth and manpower growth to address
challenges of talent shortage and employability of significantly large numbers in relatively short
span of time.
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INTRODUCITON

OBJECTIVES OF THE STUDY

1. This study primarily tries to analyze the basic contribution of entrepreneurship to national
economic growth and development, with particular reference to the two emerging powers India
and China who have followed somewhat different paths towards similar objectives of reconciling
growth with sustainability and equity.

2. Other issues examined are the impact of cultural and demographic factors on the
entrepreneurial spirit and the business/government policies and intellectual environment
facilitating or creating barriers to unleashing the full potential of private individuals and
institutions in both countries.

METHODOLOGY OF THE STUDY

This research has been based entirely on secondary data sources, which were subject related. The
sources used were books, journals, newspapers, reports and websites.

LIMITATIONS OF THE STUDY

Like any other research paper, time was a constraint. More literature review could have been
done with a broader time span. Also more recent data, in certain areas would have helped to
analyze better.

SCOPE FOR FURTHER RESEARCH

Entrepreneurship and its effect on growth as well as the environment, socio-cultural factors and
the effects on social entrepreneurship can be studied in detail across a diverse country like India
as also the various provinces of China.

Further research is also possible in finding the changes in levels of entrepreneurial activity which
can impact the per capita GDP. Another off-shoot would be researching on the time lag for
improving the entrepreneurial activity and whether this has any impact/correlation to increasing
per capita GDP.

INDIA & CHINA COMPARED www.zenithresearch.org.in

It is a matter of continuous debate that China has basically grown based on accumulation of
resources whereas India has shown significantly better returns on capital and efficiency in
managing its resources. While this may be true, what is of significance is that post independence
of India (1947) and China (1949), both started as economically backward, centrally planned
agrarian economy and then went on to open up significantly in 1978 ( China) and 1991 ( India).
Both had issues of corruption and bureaucratic red tapism which continue to hamper general
business and trade. While China has basically been FDI led with little local entrepreneurial
activity (at least till 2001-02), the Chinese save and invest more in their economy (almost twice
that of India). The share of gross domestic investment in GDP is 41 % in China compared to
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22.8% in India. The Chinese are more open to international trade and export share of GDP is
twice that of India. (See Table 1 for details).

TABLE 1: SHARE OF GDI IN GDP

China 1982 1992 2001 2002

GDP (US$ billions) 221.5 454.6 1,167.1 1,232.7

Gross domestic investment/GDP (%) 33.2 36.2 38.5 41.0

Exports of goods & services/GDP (%) 8.9 19.5 25.5 29.5

Gross domestic savings/GDP (%) 34.8 37.7 40.9 44.0

India

GDP (US$ billions) 194.8 244.2 478.5 510.2

Gross domestic investment/GDP (%) 21.7 23.8 22.3 22.8

Exports of goods & services/GDP (%) 6.1 9.0 13.5 15.2

Gross domestic savings/GDP (%) 18.3 21.8 23.5 24.2

Source : Paper titled ―China’s Political economy‖, Lynette Ong, Australian national University

A more compelling reason to account for India's slower growth is the flows of foreign direct
investment (FDI). As shown in the diagram below, the amount of FDI into India is only a small
fraction of that into China. Of course, any statistics, especially those reported by communist
cadres who are rewarded for economic performance of their localities, should be taken with a
grain of salt. As frequently pointed out, China's FDI figures are likely to be exaggerated by
"round-tripping" - domestic capital disguised as foreign investment (passed through Hong Kong) www.zenithresearch.org.in
to qualify for special investment incentives reserved for foreigners. India's FDI figures, however,
may be understated because they exclude foreigners' reinvested profits, the proceeds of foreign
stock market listings, intra-company loans, and so forth. This may not be a simple issue of
whether India is able to attract foreign investment but more connected with Government policy
in a multi party democracy with its pressures of push and pull from different constituencies as we
have seen in the recent SEZ development, a policy which has been so successfully implemented
by China quite some time back on a far larger scale and size to become ― factories to the world‖.
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Source : Paper titled ―China’s Political economy‖, Lynette Ong, Australian national University

India’s growth has been far more organic and home grown ( hence sustainable?) than the FDI led
Chinese growth story ( substitute for domestic entrepreneurship), further backed by the width,
depth and increasing sophistication of India’s financial markets, functioning judiciary ( never
mind the pile up of cases!), protection of property, intellectual property rights, English led
education system, institutions of excellence like IIT’s, IIM’s, IISc,etc who given the right
support and ecosystem can churn out the best of talent as can be seen from the history of Silicon
Valley where Indians are a mainstay in technology led innovations and contributed a great deal
to India software revolution.

Last but not the least, the attitude towards failure has changed significantly across the globe,
more so in closed societies like India and China where the ―fear of failure‖ and lowering of
social status was a major hindrance and barrier to entrepreneurship. Stories abound about fathers
not giving the hand of their daughters to prospective grooms who are businessmen and hence not
very reliable or socially mobile. Much of this has changed in the last decade or so, primarily on www.zenithresearch.org.in
account of more global exposure and integration, and more importantly due to
institutionalization of the entrepreneurial process in form of venture capitalists, angel investors,
business incubators to make the survival process more sustainable and add credibility to the
wealth and job creation activity in developing countries, to pull them out of the poverty trap and
march towards a economic powerhouse status as predicted by Goldman Sachs BRIC report.

The picture would be incomplete without touching the latest developments in social
entrepreneurship, made popular by the progenitor of microfinance, Mr Mohammed Yunus of
Grameen Bank, Bangladesh starting from the first few dollars given to Sufia Begum in 1974.
The debatable issue is of course whether this is leading to creation of productive enterprises or
only distribution of largesse on behalf of the super rich of the globe.
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WHAT IS ENTREPRENEURSHIP?

Entrepreneurship is the practice of starting new organization, particularly new businesses
generally in response to identified opportunities. Entrepreneurship is often a difficult
undertaking, as a majority of new businesses fail. Entrepreneurial activities are substantially
different depending on the type of organization that is being started. Entrepreneurship ranges in
scale from solo projects (even involving the entrepreneur only part-time) to major undertakings
creating many job opportunities. Many "high-profile"entrepreneurial ventures seek venture
capital or angel funding in order to raise capital to build the business. Many kinds of
organizations now exist to support would-be entrepreneurs, including specialized government
agencies, business incubators, science parks, and some NGOs.

LITERATURE SURVEY

David McClelland (1961) described the entrepreneur as primarily motivated by an overwhelming
need for achievement and strong urge to build.

Collins and Moore (1970) studied 150 entrepreneurs and concluded that they are tough,
pragmatic people driven by needs of independence and achievement. they seldom are willing to
submit to authority.

Bird (1992) sees entrepreneurs as mercurial, that is, prone to insights, brainstorms, deceptions,
ingeniousness and resourcefulness. they are cunning, opportunistic, creative, and unsentimental.

Busenitz and Barney (1997) claim entrepreneurs are prone to overconfidence and over
generalisations.

Cole (1959) found there are four types of entrepreneur: the innovator, the calculating inventor,
the over-optimistic promoter, and the organisation builder. These types are not related to the
personality but to the type of opportunity the entrepreneur faces.

Burton W. Folsom distinguishes between what he calls a political entrepreneur and a market
entrepreneur. The political entrepreneur uses political influences to gain income through
subsidies, protectionism, government-granted monopoly, government contracts, or other such
favorable arrangements with government(s) (crony capitalism and corporate welfare). The
www.zenithresearch.org.in
market entrepreneur operates without special favors from government.

CHARACTERISTICS OF ENTREPRENEURSHIP

The entrepreneur has an enthusiastic vision, the driving force of an enterprise.

The entrepreneur's vision is usually supported by an interlocked collection of specific
ideas not available to the marketplace.

The overall blueprint to realize the vision is clear; however details may be incomplete,
flexible, and evolving.
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The entrepreneur promotes the vision with enthusiastic passion.

With persistence and determination, the entrepreneur develops strategies to change the
vision into reality.

The entrepreneur takes the initial responsibility to cause a vision to become a success.

Entrepreneurs take prudent risks. They assess costs, market/customer needs and persuade
others to join and help.

An entrepreneur is usually a positive thinker and a decision maker.

Types of entrepreneurship:

Basically two types of entrepreneurship are defined as follows:

A. OPPORTUNITY ENTREPRENEURSHIP: Those motivated by identified business
opportunities in an evolving economic landscape and exploit the perceived opportunity.

B. NECESSITY ENTREPRENEURSHIP: They are pushed into this because all other
options of work are absent or unsatisfactory. Table 2 (Refer to Annexure) from GEM
2006 report show global trends which are quite self explanatory.

MORE LITERATURE REVIEW

A World Bank report on ―Doing Business‖ (2005-06) states that:

Entrepreneurs in South Asia face large regulatory obstacles to doing business.

A standard company in India pays 81% of commercial profits in taxes

In India only 8 million workers have formal jobs in the private sector in a country of over
1 billion people and a workforce of 458 million.

In another study of World Bank on ―Entrepreneurship‖, Klapper (2006) two indicators have been
analyzed. One is Business density which is defined as the number of registered firms as a % of www.zenithresearch.org.in
the active population within the age group of 15-64 years. Another is the Entry rate which has
been defined as the number of new firms registered in a particular year as a percentage of the
total registered firms.

The entry rate can be considered as one of the key indicators of entrepreneurship. In the survey
conducted during the period 1990-2003 across 95 countries across the globe, entry rate was
found to be less than 5% in India as compared to 20% in Germany, New Zealand and U.K.
However, the average entry rate is 7-8% across developing countries.
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Business density was found to vary across country income groups and range from less than 1%
in low-income countries to 10% in high income countries.

Barriers to starting a business are negatively correlated with business density and entry rate. The
lesser the procedures required to start a business, greater the number of registered firms and
higher the entry rate. (Refer to Table 16 of Annexure for further details)

There is also a relationship with total firm registrations being higher in countries with a small
informal sector.

In connection to the last finding we have concluded that SMEs are being increasingly recognized
as an essential driving force for economic growth in developing countries. These SMEs are
flexible to respond quickly to market changes and opportunities to develop specialized product
niches and absorb rapid technological innovations provided they get the right guidance, training,
are made aware with right policy environment and greater access to financial services. So SMEs
in turn can create substantial capital and jobs at a local level thereby raining the local standards
of living.

Women have been playing an increasing role in this sector especially in developing countries.
One of the reasons being the socio-cultural environment as in India, where women (especially in
the rural areas) tend to take charge of the income-generation modes and turn out to be better
planners and decision makers than the men folk. In India, we should not forget to mention
Dhirubhai Ambani filling tanks at a petrol station in Aden, going from loan officer to loan
officer, himself carrying bolts of textile, for loans of a few lakhs, eventually constructs a giant,
the Reliance we see today. Mammen Mappillai who, together with his wife, begins by selling
balloons, and then creates MRF. Seven housewives begin Lijjat Papad with 80 borrowed Rupees
— today 40,000 women out of their homes have taken its turnover to Rs 300 crores. The
dabbawallahs of Mumbai reach two lakh tiffin carriers from homes to offices and back using just
public transport and pavements; the convenience that the roadside thelawallah brings to the
customer — they are also entrepreneurs all the way. After all, they have become case studies in
foreign B-schools.

China has been successful in lifting millions of people out of poverty in less than 3 decades as a
result of governmental reforms and private sector development. DFID (U.K.) has been working
in China since 1999 for reducing poverty. One of its projects ―Start & Improve your business‖
project started in 2004 aimed at providing entrepreneurial training to the Chinese. The ―Private www.zenithresearch.org.in
Enterprise Partnership for China‖ project was launched in 2001. This aimed at reducing the
problems faced by SMEs like limited access to financial services, underdeveloped policies, lack
of knowledge and risk management techniques. The ―SME Support System‖ project started in
2005 is promoting private sector development through China’s law on promoting SME and
closing the gaps in this policy. This is an institutionalized form of the TVE (Town & Village
Enterprises) revolution that contributed to the growth of China in 1980s and 1990s that have
outrun both state-owned and foreign invested companies.
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Source: Unleashing Entrepreneurship: Making Business work for the Poor

http://www.undp.org.mk www.zenithresearch.org.in

OVERVIEW AND IMPACT OF ENTREPRENEURIAL ACTIVITIES ON NATIONAL
ECONOMIC GROWTH

A study of the conceptual model as developed by Global Entrepreneurship Monitor clearly
brings into focus the systematic relationship between per capita GDP levels, entrepreneurial
activity levels ( TEA-Total entrepreneurial activity) by various kinds of businesses like early
stage entrepreneurs and established business owners as also differences and similarities between
high income and middle income countries along with framework conditions necessary to
facilitate and support entrepreneurship among various kinds of enterprises as shown below.
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GEM CONCEPTUAL MODEL

Entrepreneurial Level of National
framework entrepreneurial economic
conditions in activity in the growth of
the country country the country

A detailed framework of the Total Process (Table 3), elaboration of General National Framework
conditions (Table 4) and elaboration of Entrepreneurial framework conditions (Table 5) may be
referred to from the Annexure.

Comparing the two economic powers India and China based on the above general framework
conditions, the competitiveness of China lies in greater openness to external trade and excellent
infrastructure. The stranglehold of the centralized command in form of Communist party is of
course a double edged sword resulting in short term implementation with single minded
determination, possibly a the cost of long term strategies which is a subject of much larger
debate.

The Indian economy scores on the depth, sophistication, liquidity of financial institutions, higher
levels of technology/ R&D absorption especially in IT, software services, pharmaceuticals and
biotechnology led by excellent higher educational institutions like IIT’s / IISc, etc, global
management skills and a good regulatory and legal system with fair rule of law (by and large at
least compared to China) especially on the fronts of intellectual property and property rights.
Physical infrastructure is a sore point with all kinds of entrepreneurs and so is the levels of
reliability with social infrastructure and utilities like power, water which lead to excessive usage
of capital for similar scale of operations compared to western counterparts thus eroding
competitiveness on global stage. However this showing dramatic improvements in most urban
areas and needs to be in sync with economic growth rates projected over the 11 th five year plan
and beyond.

Compared to developed western world of course, both the Asian giants have a long way to go www.zenithresearch.org.in
with respect to labour policies flexibility, growth of financial institutions so as to allocate capital
more efficiently ( instead of distorted subsidies and vested interests), foreign exchange controls
and convertibility regime, marketing and accounting services of global quality, consumer
sophistication, widespread communication facilities and overall institutionalization of all
facilitating government support factors besides breaking down the corruption and bureaucratic
bottlenecks existing across the spectrum of formal and informal institutions.

One other aspect of the analysis of economic sectoral activities clearly shows the following
trends:
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In both ―early stage‖ and ―established business ownership‖ the ―business services‖ sector
is predominant in high income countries.

The middle income countries lead in ―consumer oriented‖ industries in both types of
entrepreneurial activity, mainly due to demographic reasons and growing market
opportunities based on rising disposal incomes and low base of consumption in value
added products and services.

As far as ―transformation‖ (construction/manufacturing/transportation/distribution) and
―extractive‖ (extraction of products from natural environment) sectors are concerned both
groups of countries are somewhat similar in trends.

(Please refer to Table 6 of Annexure)

CULTURAL/ DEMOGRAPHIC FACTORS IMPACTING ENTREPRENEURIAL
ACTIVITIES

The entrepreneurial demographics of age, gender, work status, education, income and
perceptions are all significant socio-economic factors in a person’s decision to start a business.

Both India and China have been subjected to social behaviour systems that condemn profit
seeking and advocates group orientation, conformity and respect for authority.

However the East Asian economic miracles driven largely by diasporas of overseas Chinese
entrepreneurs focused on values of persistence, diligence, thrift and family as strong supporting
factors for entrepreneurial development.

Some important entrepreneurial values like creativity, innovation and flexibility were lacking in
Chinese value systems and thus cultural barriers to entrepreneurship. There has been a
historically low social status of entrepreneurs in China, influenced also by political ideology and
degree of openness to foreign values. This value system incidentally is very similar to Indian
value systems and leads to the most important characteristic barrier which is the ―fear of failure”
and not being resilient enough to take on challenges and changing with the dynamic business
environment.

In China, quitting one’s job at an SOE means sacrificing not only a stable income, but also www.zenithresearch.org.in
significant fringe benefits such as housing and hence one needs to be more risk-loving than
counterparts elsewhere to overcome environmental barriers. Situation is very similar in India
with respect to the public sector vis-à-vis private sector which has of late broken down to a large
extent due to MNC influence and less stranglehold of political ideology as compared to Chinese
regulated economy and also due to other business environment factors that we will discuss in the
next section.

Some unique characteristics to entrepreneurs in China are political nimbleness and interpersonal
harmony. Historically, China has been unpredictable. For example, Deng opened the doors to
economic freedom, but also ruthlessness cracked down on demonstrators in Tiananmen Square.
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Liquidity is a valued intangible asset of Chinese entrepreneurs and back-up plans, dual
citizenship, low capital-requirement start ups allow for desired liquidity for overseas Chinese
entrepreneurs in countries like Indonesia, Malaysia and Singapore.

Hard work and liquidity are factors Chinese entrepreneurs use to hedge for unpredictable
environment. Additionally, interpersonal harmony and guanxi are important factors for reducing
risk. Roughly translated ― guanxi‖ means connections and affiliations and implicit in this is
corruption, bribery and ― under the table‖ activities for licenses and Government approvals, very
similar to the license-permit Raj prevailing in India till a few years back and to some extent even
today in regulated sectors.

The management structure of entrepreneurships in India and China were largely family
controlled till the knowledge economy dawned and professionalized the environment with free
access to capital based on merit and innovation.

With accelerating reform and increased exposure to the West, values in these countries are also
changing. Perceptions of entrepreneurs are improving, and people are rushing to ―xiahai‖ (This
phrase literally means go into the sea. Figuratively it means get rich by working in the private or
foreign sectors).

ATTITUDES TOWARD FAILURE/SUCCESS

As everyone knows, many individuals in China have been successful in developing businesses
because the government cannot offer enough job opportunities. Their primary goal is to earn
money and sustain their basic living conditions. But from the middle of the 1990s, with the rising
standard of living, increasing numbers of people set up new ventures not only to sustain their
lives or to make more money but also for self-development. According to a survey of 201 private
entrepreneurs in Hunan province, conducted by the Hunan Association of Business and
Commerce and the Department of Hunan Unification, 41.79 percent of entrepreneurs there set up
an enterprise to improve their living conditions, 16.91 percent to sustain their basic living
standards, 18.41 percent to realize their self-value, 15.9 percent to contribute to society, 4.48
percent to apply their specialties and 2.49 percent for other purposes. With more people engaged
in business for purposes besides earning money, the criteria for judging whether an entrepreneur
is successful or not depends not only on the money he/she has made, although money is the most
important item. Employees hired by private enterprises are seeking not only a higher income but
also to realize their self-value and have a free and fair working atmosphere, which is more
common in high-tech private firms. But private enterprises cannot offer the same social security
benefits as state-owned enterprises, including medical care, retirement pensions and even
unemployment benefits (for the government denied the phenomenon of unemployment for a long
time). Employees in private enterprises have higher mobility and a greater awareness of risk than
employees in the state-owned units (including in the collective-owned units). Layoffs,
resignations and a different kind of relationship between employers and employees are widely
accepted. If dismissed, the employee is able to accept this result quietly and willing to try and
find other opportunities by him/herself. On the other hand, the entrepreneur also realizes that his
firm, if poorly managed or if the product is rejected by the marketplace will become bankrupt,
and he is also able to accept the fact and to try to find another new way to salvage his business.
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Regarding the attitudes of the people toward entrepreneurial failure, Chinese believe that it is
natural and unavoidable since there are a great many storms in the ―market ocean‖ and it is
impossible to avoid drinking ocean water occasionally. So even when someone is a failure in the
market ocean, while he/she does ―go up the seaboard,‖ people look up to him/her, like to talk
with him/her and hope that he/she will be able to re-launch the enterprise in the near future.

Similar attitudinal shifts have taken place in India since the mid nineties with more educated
professionals willing to take calculated risks and backed by better access to capital from venture
capitalists and private equity , besides improved institutional support from Government and
others like Wadhwani Foundation’s NEN ( National Entrepreneurship Network), NSRCEL (
N.S.Raghavan Centre for Entrepreneurial learning), Entrepreneurship centres at IIT’s/IISc/IIM’s
and various other Government schemes mainly targeting small and micro enterprises to boost
employment and take the load off public and Government sectors who have an increasingly
lesser role to play in a market economy, other than improving the ecosystem and facilitating
entrepreneurship.

The proliferation of domestic and foreign media and returning of non resident Indians from
Silicon Valley to establish their own ventures as well as fund start ups have highlighted
entrepreneurship and given a much needed respectability which hitherto was not there among
middle class educated India, since profit seeking was considered to be anathema and only meant
for the uneducated or political class with no other options. Thus there has been a gradual shift
from necessity entrepreneurship to opportunity entrepreneurship and far less fear of failure since
de-risking is a strategic imperative which is taken care of by more educated and aware
entrepreneurial classes.

Adequacy of social and cultural norms for entrepreneurship in India is below the global average
as an integrated measure of various parameters. (Refer to Table 7 of Annexure)

BUSINESS ENVIRONMENT FOR ENTREPRENEURIAL ACTIVITIES

CHINA

After the Cultural Revolution, with China’s economy in ruins and facing a crisis of legitimacy,
Deng launched the ―Four Modernizations‖ reform in 1978 to stimulate economic growth. The
first step was de-collectivisation of agriculture creating the ―township and village enterprises‖
(TVEs). By 1990 TVEs accounted for 20% of China’s gross output. These enterprises were not www.zenithresearch.org.in
state owned unlike SOE but collectively owned under local governments. Managers of TVEs
demonstrated many entrepreneurial characteristics, choosing the product line, funding, labour,
raw materials and distribution channels and reacted to prices and costs in pursuit of profits. Thus
TVEs can be seen as the beginnings of modern Chinese entrepreneurship.

By late 1980’s there was a change of policy and surge towards the private sector. The central
government’s recognition of waste and inefficiency generated by SOEs motivated individuals to
move into entrepreneurship and SOEs have been forcefully shrunk in late 90’s. The state run
sector was contracting at least 3 million workers a year while fifty million join the work force
per year. SOEs are also encouraging employees to pursue advanced degrees. While this is
socially uplifting, a problem exists with employing these students after they graduate, hence it
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was obvious that the Chinese system of ― iron rice bowl‖ ( lifetime employment with housing
etc) was no longer a reliable method of survival and growth.

Private entrepreneurship started with very small scale activities in retail and services, businesses
known as getihu, referred to as self-employed with low social status that were excluded from the
state system.

The next wave was from the MNC/FDI dominated growth drivers and the foreign educated
Chinese returning to China, especially in Internet sector, backed by venture capitalists from
USA.

All these entrepreneurial activities are subject to unpublished regulations ( neibu) and the
caprices of courts who often have retired military persons as judges. Access to resources like
funding, labour, technology has to be overcome since bank loans remain rare. Though venture
capital is in early growth phase, entrepreneurs in China are not accustomed to idea of writing
business plans and approaching VC’s, especially since it might mean giving up equity control.

INDIA

The ecosystem in India has undergone a radical change since the days of Nehruvian socialism
and theory of public sector occupying ―commanding heights of the economy‖. Much water has
flowed since the 1991 liberalization on issues of privatization, foreign investments both in terms
of equity and portfolio investments and venture capital seeking good business plans to fund after
their successes in Europe, USA and Israel and partly in China. Of course this has been limited to
sectors like clean technologies and communication start ups in Web 2.0 space, as is the trend
globally. VC’s seem to be more concerned with the health of the planet and how better to
communicate for business and personal reasons, nanotechnology and medical devices as the next
frontier for returns on investment.

However some of the basic factors of financial support to new firms (state funding), government
programs and policies, education systems and infrastructure, R&D/technology transfer, taxation
and accounting/professional services have played a stellar role in facilitating and encouraging
entrepreneurship at all levels of society across regional disparities and without discrimination on
grounds of gender, caste, sex, etc. Refer to Table 8, 9,10,11,12,13,14,15, & 16 of Annexure
which give a good indication of the status of these parameters with respect to global averages
and show the way forward. www.zenithresearch.org.in
RESEARCH FINDINGS & CONCLUSIONS

While the study has limitations in terms of more concrete quantitative and qualitative data
regarding the Chinese entrepreneurial dynamics and more recent advances taking place in the
Indian economy could be incorporated in a more exhaustive paper, what is clearly evident is
summarized below:

a. Both the economies are growing at an increasing speed with an immense contribution
from the entrepreneurial class who are being supported and facilitated with dynamic
improvements taking place in the ecosystem for entrepreneurial activity.
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b. There is a conclusive and systematic relationship between per capita GDP and
entrepreneurial activity as measured by TEA (total entrepreneurial activity) as per Global
Entrepreneurship Monitor reports which compare the differences in entrepreneurial
activity between different sets of countries and their correlation with GDP levels.

c. What needs to be further analyzed is what changes in levels of entrepreneurial activity
can impact the per capita GDP and also what would be the time lag between improving
the entrepreneurial activity and resulting increase in per capita GDP. This kind of detailed
analysis would give more accurate quantitative tools for policy makers to support and
facilitate entrepreneurship and allocate financial resources with more certainty of cause
and effect relationship.

d. Social and cultural value systems undoubtedly play a critical role in catalyzing
entrepreneurship activities and more university/ institutions of excellence should initiate
entrepreneurship cells, business incubators and entrepreneur-in-residence programs to
drive growth and employment through faster technology transfer and robust R&D
activities.

e. The Government and financial / legal systems have a major role in deepening the access
to capital, providing subsidies to emerging clean technologies which are globally
imperative to improve the health of the citizens and communication/networking across
borders and ensuring the rule of law to reconcile the twin objectives of growth with
equity along-with sustainability as the cornerstone of development in the global market
economy.

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http://www.edcorner.stanford.edu

http://www.bhide.net/publications

http://www.martinhaemmig.com www.zenithresearch.org.in

Development of Private Entrepreneurship in China-Process, Problems and Countermeasures by
Yinqiu Liu, Senior Research Fellow and Professor of Economics at the Chinese Academy of
Social Sciences.

http://www.worldbank.org

Global Entrepreneurship Monitor Report: India Report 2001 and Global Report 2006, Babson
College US and London Business School; http://www.gemconsortium.org

The Indus Entrepreneurs ( TiE); http://www.tie.org
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Asia Society,New York; http://www.asiasociety.com

http://www.ifc.org; International Finance Corporation

VentureOne ; http://www.ventureone.com

PWC; http://www.pwcglobal.com

http://www.indiavca.com; Indian Venture Capital Association

TSJ Media

KPMG Reports, http://www.kpmg.com

Yaleglobal Oneline Magazine, http://www.yaleglobal.yale.edu

http://www.mckinsey.com; Mckinsey Global Institute

Nishith Desai Associates; http://www.nishithdesai.com

Mira Kamdar: Praise for Planet India: How the Fastest-Growing Democracy is
Transforming America and the World AT Kearney; http://www.atkearney.com

― Everyday Entrepreneurs‖ by Aruna Bhargava

The High Performance Entrepreneur by Subroto Bagchi ; Founder of Mindtree
Consulting,Bangalore

NSRCEL, N.S.Raghavan Centre for Entrepreneurship learning.
IIM,Bangalore;http://www.iimb.ernet.in

IIT, Delhi,Mumbai, Chennai; http://www.iitd.ac.in; http://www.iitm.ac.in

Goldman Sachs, http://www.gs.com

http://www.altassets.com

American Venture Capital Journal; http://www.americanventuremagazine.com www.zenithresearch.org.in

Ernst & Young, http://www.ey.com; 2006 VC Insights Report

Boston Consulting Group, http://www.bcg.com; 2006 Global VC Report

Planning Commission of India; http://www.planningcommissionindia.nic.in

NCAER, http://www.ncaer.com, National Centre of Applied Economic Research
100


CMIE, http://www.cmie.com, Centre for Monitoring of Indian Economy

Wadhwani Foundation, NEN, http://www.nenonline.org

Harvard Business School, http://www.hbs.edu; HBS Working Knowledge

2006 Global Venture Capital Report; http://www.deloitte.com

World Economic Outlook: IMF; http://www.imf.org

Bank for International Settlements: http://www.bis.org

International Labour Organization; http://www.ilo.org

United Nations:http://www.un.org

101


ANNEXURE

TABLE 2


Source : Global Entrepreneurship Monitor Report 2006
102


TABLE 3: GEM CONCEPTUAL MODEL: THE TOTAL PROCESS

Major
established
General National Firms
Framework
conditions
National
Micro, Economic
Small & Growth
Social, cultural, medium GDP
political context Firms
Jobs

Entrepreneurial Entrepreneurial
Framework Opportunities Business
conditions Churning
Entrepreneurial
capacity


TABLE 4: GEM CONCEPTUAL MODEL : ELABORATION OF GENERAL
FRAMEWORK CONDITIONS

Major
General National Framework established
Conditions Firms
Openness (external Trade)
Social,
Government (extent, Role)
cultural, National
political Financial Markets (efficiency) Economic
context Technology, R&D (level, Growth
intensity) GDP
Infrastructure (efficiency) Jobs
Management (Skills)
Labor Markets (Flexibility) Micro,
Institutions (unbiased rule of Small &
Law) medium
Firms
103



TABLE 5: GEM CONCEPTUAL MODEL : ELABORATION OF
ENTREPRENEURIAL FRAMEWORK CONDITIONS

Entrepreneurial
Entrepreneurial Framework Opportunities
Conditions
Financial Support
Social, National
Government Policies
cultural, Business Economic
political Government programs Growth
Education and Training Churning
context GDP
R&D transfer Jobs
Commercial Infrastructure
Internal market openness
Physical Infrastructure Entrepreneurial
Cultural, Social Norms capacity

Source : Source : Global Entrepreneurship Monitor Report 2006

104


TABLE 6


Source : Source : Global Entrepreneurship Monitor Report 2006
105


Table 7: Adequacy of Social and Cultural Norms (2001)
Scale : 1- Completely false INDIA INDIA LOWEST HIGHEST AVERAGE
5 - Completely true 2000 2001 GEM 2001

Entrepreneurship is a
respected way to get rich 3.44 3.33 2.27 4.68 3.4
Japan USA
Entrepreneurship is a good
career choice for most 2.81 2.24 2.17 4.31 2.99
Finland Israel
Respect / status for successful
entrepreneurs 4.14 3.69 2.56 4.61 3.54
Australia USA
Media reports many stories of
successful entrepreneurs N.A. 3.79 2.77 4.2 3.55
Norway Israel
People think that only the
unemployed start new firms 2.92 3.24 2.58 4.44 3.45
Brazil Israel

AVERAGE 3.43 3.26 2.87 4.45 3.38
Sweden USA

Source : Global Entrepreneurship Monitor Report , India Report 2001

Table 8: Financial Support to New Firms (2001)

Equity funds for new/growing
firms available 1.69 3.14 2.18 4.17 3.17
Argentine USA
Debt funds for new/growing firms
available 2.03 3.54 1.82 4.19 3.05
Argentine USA
Public subsidies promote
startups 3.23 3.14 1.39 4.16 3.13
Argentina Germany
Private individuals are an

important source of funds 3.36 3.23 1.93 4.62 3.26
Brazil USA
VCs are an important source of
funds 2.89 3.22 1.87 4.57 3.21
Italy USA
IPOs are an important source of
funds 3.38 N.A. 1.21 4.19 3.22
Argentina Germany

AVERAGE 3.19 3.18 1.99 4.3 3.08
Argentina USA

106


Table 9: Government Policy on New Firms (2001)
Government Policy favours
new firms 2.34 2.06 1.38 3.04 2.26
Argentina USA
New firms receive support from
the national government 2.78 2.58 1.26 3.78 2.93
Argentina UK
New firms receive support from
the local government 2.91 2.75 1.45 3.58 2.94
Argentina Finland

New firms get permits/licenses
in about a week 1.17 1.36 1.12 3.24 1.90
Argentina Singapore
Amount of taxes not a burden
for new/growth firm 2.55 2.47 1.35 3.70 2.36
Argentina Ireland
Government regulations are
predictable/consistent 2.66 2.56 1.24 4.11 2.59
Argentina Singapore

AVERAGE 2.40 2.30 1.30 3.45 2.50
Argentina Ireland


Table 10: Government Programs for New Firms (2001)
Government provides one stop
service to new firm 1.80 2.20 1.21 3.42 2.33
Argentina Singapore
Science parks / incubators help
start up of firm 2.57 2.67 1.79 3.97 3.09
Argentina France
New firm programs of the
government are adequate 2.86 2.47 1.35 4.31 3.01
Argentina Germany www.zenithresearch.org.in
Government personnel are
competent/effective 2.14 2.19 1.48 3.43 2.54
Argentina Ireland
Anybody needing new firm
assistance can find it 2.03 1.83 1.33 3.53 2.40
Argentina Germany

AVERAGE 2.28 2.27 1.43 3.57 2.67
Argentina Germany

107


Table 11: Entreprenuerial capacity and the Education System (2001)
Education system encourages
self reliance 1.69 1.92 1.56 2.94 2.21
Portugal USA
Education system,/economic
market infrastructure adequate 1.58 1.72 1.47 2.59 1.99
Portugal Ireland
Education system gives attention
to entrepreneurship 1.36 1.64 1.28 2.32 1.76
Portugal Ireland
College/university
entrepreneurship course are
adequate 2.22 2.06 1.64 3.24 2.52
Portugal Singapore
Business/management
education is world-class 3.44 3.33 2.03 3.97 2.98
Japan Spain

AVERAGE 2.06 2.13 1.65 2.84 2.29
Portugal Singapore


Table 12: Research & Development Transfer (2001)
Technology transfer between
universities and firms is
effective 2.14 2.00 1.73 3.24 2.43
Italy USA
New firms have good access
to R&D 2.03 2.24 1.67 3.00 2.20
S. Africa Belgium
New firms cannot afford new
technologies 4.06 2.31 1.72 3.18 2.33
Mexico Belgium www.zenithresearch.org.in
Adequate government
subsidies for new firm R&D 2.58 2.33 1.44 3.28 2.50
Argentina France

World class R&D technology
available in at least one sector 2.78 3.11 1.73 4.16 3.15
Argentina France

AVERAGE 2.72 2.40 1.87 3.26 2.52
Argentina Belgium

108


Table 13: Commercial, Legal & professional Infrastructure (2001)
Adequacy of suppliers / sub
contractors for new firms 3.80 3.14 2.08 4.42 3.38
Japan USA

Suppliers / sub contractors
cost is affordable by new firms 2.11 2.97 3.51 2.88 2.84
Japan Spain
Easy for new firms to get
quality suppliers/sub
contractors 1.80 3.03 1.84 3.77 3.01
Japan Belgium
New firms get good
legal/accountancy services 3.36 2.64 2.22 3.36 2.59
Japan USA
New firms get good banking
service 3.03 3.65 1.43 4.11 3.19
Japan USA

AVERAGE 3.26 3.27 1.94 3.91 3.16
Japan USA


Table 14: Market Openness and Ease of entry(2001)

Dynamism of consumer market 2.80 3.46 2.02 4.11 2.88
Norway S. Korea

Dynamism of business market 2.52 2.97 2.21 3.71 2.84
Norway S. Korea
Barriers to market entry are too
high 3.20 2.68 2.13 3.64 2.78
S. Africa USA
New firms can afford to enter
new markets 1.69 2.64 2.10 3.36 2.59
S. Africa USA www.zenithresearch.org.in
Established firms don’t block
market entry 1.49 2.62 1.97 3.80 2.77
Japan Italy
Anti-trust regulation is well
enforced 1.49 1.97 1.67 3.58 2.82
New
Argentina Zealand

AVERAGE 3.14 2.72 2.38 3.33 2.78
S. Africa USA

109


Table 15 : Adequacy of Physical Infrastructure (2001)
Physical Infrastructure good for
new/growing firms 2.28 2.20 2.20 4.58 3.35
India Singapore
Cheap communication access
for new/growing firms 3.31 3.49 2.67 4.47 3.62
Hungary Germany
New/growing firms get
communication access in
about a week 2.25 2.74 2.00 4.50 3.55
Spain Singapore
New/growing firms can afford
the utility costs 3.31 2.64 2.22 2.69 2.59
Japan Singapore
New/growing firms get utility
access in about a month 2.51 2.64 2.64 4.63 3.75
India Singapore

AVERAGE 2.73 2.90 2.90 4.46 3.66
India Singapore

110


Table 16 : Ease of starting business
Economy CHINA INDIA
Year 2003 2004 2005 2006 2003 2004 2005 2006
.. .. 108 93 .. .. 138 134

Ease of Doing Business Rank
Starting a Business
Rank .. .. 141 128 .. .. 102 88
13 13 13 13 11 11 11 11
Procedures (number)
Time (days) 48 48 48 35 89 89 71 35
17.8 15.9 13.6 9.3 53.4 49.5 62 73.7

Cost (% of income per capita)
1,236.50 1,104.20 946.7 213.1 0 0 0 0
Min. capital (% of income per
capita)

Dealing with Licenses
Rank .. .. 151 153 .. .. 154 155
Procedures (number) .. .. 28 29 .. .. 20 20

Time (days) .. .. 359 367 .. .. 270 270
.. .. 101.1 84 .. .. 678.5 606
Cost (% of income per capita)

Employing Workers
Rank .. .. 77 78 .. .. 113 112
11 11 11 11 33 33 33 33
Difficulty of Hiring Index
20 20 20 20 20 20 20 20
Rigidity of Hours Index
Difficulty of Firing Index 40 40 40 40 70 70 70 70
23 23 24 24 41 41 41 41
Rigidity of Employment Index
.. .. 44.5 44 .. .. 16.8 16.8
Nonwage labor cost (% of

salary)
91 91 91 91 55.9 55.9 55.9 55.9
Firing costs (weeks of wages)

Registering Property
Rank .. .. 21 21 .. .. 108 110
.. 3 3 3 .. 6 6 6
Procedures (number)
Time (days) .. 32 32 32 .. 62 62 62
.. 3.1 3.1 3.1 .. 13.1 7.9 7.8
Cost (% of property value)
111


Economy CHINA INDIA
Year 2003 2004 2005 2006 2003 2004 2005 2006
Getting Credit
Rank .. .. 117 101 .. .. 96 65
Legal Rights Index .. 2 2 2 .. 4 4 5
.. .. 3 4 .. .. 2 3
Credit Information Index
Public registry coverage .. .. 0.4 10.2 .. .. 0 0
(% adults)
Private bureau coverage .. .. 0 0 .. .. 1.7 6.1
(% adults)

Protecting Investors
Rank .. .. 114 83 .. .. 33 33
Disclosure Index .. .. 10 10 .. .. 7 7
.. .. 1 1 .. .. 4 4
Director Liability Index
.. .. 2 4 .. .. 7 7
Shareholder Suits Index
Investor Protection .. .. 4.3 5 .. .. 6 6
Index

Paying Taxes
Rank .. .. 169 168 .. .. 159 158
Payments (number) .. .. 48 48 .. .. 59 59
Time (hours) .. .. 872 872 .. .. 264 264
Profit tax (%) .. .. .. 17.7 .. .. .. 14.3
Labor tax and .. .. .. 51 .. .. .. 19.4
contributions (%)
Other taxes (%) .. .. .. 8.3 .. .. .. 47.4
.. .. 77.4 77.1 .. .. 95.2 81.1
Total tax rate (% profit)

Trading Across Borders
Rank .. .. 35 38 .. .. 139 139
Documents for export
.. .. 6 6 .. .. 10 10
(number)
.. .. 20 18 .. .. 36 27
Time for export (days)
Cost to export (US$ per .. .. 335 335 .. .. 863 864
container)
Documents for import .. .. 11 12 .. .. 15 15
(number)
.. .. 24 22 .. .. 43 41
Time for import (days)
Cost to import (US$ per .. .. 375 375 .. .. 1,244 1,244
container)
112


Economy CHINA INDIA
Year 2003 2004 2005 2006 2003 2004 2005 2006
Enforcing Contracts
Rank .. .. 59 63 .. .. 173 173
Procedures 31 31 31 31 56 56 56 56
(number)
Time (days) 292 292 292 292 1,440 1,420 1,420 1,420
26.8 26.8 26.8 26.8 35.7 35.7 35.7 35.7
Cost (% of debt)

Closing a Business
Rank .. .. 69 75 .. .. 128 133
Time (years) 2.4 2.4 2.4 2.4 11.3 10 10 10
Cost (% of 22 22 22 22 9 9 9 9
estate)
Recovery rate 31.7 31.7 31.5 31.5 10.6 12.2 12.8 13
(cents on the
dollar)

Economy Characteristics
GNI per capita .. .. 1,290 1,740 .. .. 620 720
(US$)
.. .. 13.1 .. .. .. 23.1 ..

Informal economy
estimate (% GNP)
Population .. .. 1,290,000,000 1,304,500,000 .. .. 1,060,000,000 1,094,583,000

Source : Doing Business – The World Bank Group Report

113

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