The Success Of The Entrepreneurial Sector Depends On The Support Provided By The State

THE ENTREPRENEURIAL SECTOR 1

'THE SUCCESS OF THE ENTREPRENEURIAL SECTOR DEPENDS ON THE SUPPORT

PROVIDED BY THE STATE.’ ASSESS THIS STATEMENT USING EVIDENCE FROM

BOTH DEVELOPING AND DEVELOPED COUNTRIES

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Abstract

The investigation sought to understand the role of the government in promoting

entrepreneurial activities through an investigation of the Chinese and US governments’

contribution to the growth of entrepreneurship. Based on the investigation, China has introduced

various policies meant to promote entrepreneurship through the transformation of the key sectors

such as education, manufacturing, infrastructure, and services industries. Equally important, the

US has also taken measures through the introduction of programs to support entrepreneurship

activities. These programs include the Global Entrepreneurship Program and Global

Entrepreneurship Summit. However, it is important to note that China is still a developing

nation, and thus its economy has not matured like that of the US. As such, the US offers a better

entrepreneurial environment, the major difference being the access to funds to finance SMEs.

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'The Success of the Entrepreneurial Sector Depends on the Support Provided by the State.’

Assess This Statement Using Evidence From both Developing and Developed Countries.

Introduction

The small and medium enterprises are a product of entrepreneurial activities within each

economy. SMEs play a huge role in the development of the economy especially within the

emerging and developing markets. However, the success of the entrepreneurial sector is

dependent on several, factors. Among these factors are the individual entrepreneurial skills of a

person and the desire and ability to establish and operate a business. Entrepreneurs are decisive

innovative and have the desire to take a risk and exploit the opportunities within the markets.

However, other factors also play a role in the success of the entrepreneurial sector, such as the

business policies within the market, and the nature of both the public and the private sector.

More importantly, the access to finance and the existing government policies determine the

success of entrepreneurs. Access to finance is a major challenge to entrepreneurs, particularly in

the emerging markets in Africa and the Middle East. As such, the success of the entrepreneurial

sector depends on the financial infrastructure, public sector interventions, legal and regulatory

framework, capacity needs for development, and the emergence of specific sub-segment of focus

on SMEs. However, there is no adequate empirical evidence showing the nature in which the

entrepreneurial sector depends on the governmental support. As such, it is imperative to assess

the role of the government in the success of the entrepreneurial sector using examples from both

developing and developed nations.

Literature Review

According to Hanna (2009 p. 333-335), the current global market is characterized by

various challenges, especially in the key sectors. Multinational corporations and state

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corporations were the major players in various economies in the 20

century. However,

globalization intensified the competition in the local industries due to the presence of cheaper

products from the international markets. This contributed o the collapse of various multinational

corporations that could not handle the pressure and competition in the global market. Also, state

corporations were prone to mismanagement and thus could not keep up with the private sector

(Hanna 2009, p. 333-335). One solution introduced was the privatization of the public

institutions to make them more competitive and support the national growth. However, the most

important step by many nations was the promotion of the SMEs to diversify the local markets,

increase competitiveness with global organizations, create employment to the youths, and

contribute to the national economic growth. SMEs are the backbone of the economy of many

developed and developing nations across the globe (Brabant 2012, p. 146-148).

Hoor-Ul-Ain, Hasan, and Sajjad (2014, p. 1440-1441) argue that the SMEs are the

dominant form of business organizations in the global market. According to the research

conducted by the Organization for Economic Cooperation and Development (OECD), SMEs

represent approximately 95-99% of all companies around the globe. OECD further noted that the

SMEs represent over 95% of enterprises and ensure 60-70% of the total jobs. The SMEs play a

crucial role in maintaining the competitiveness of the global industries and in diversifying the

economy, thus avoiding the excessive reliance on the public sector. SMEs are responsible for the

technological milestone achieved around the globe especially with the growth of the Tech

Companies. As such, the promotion of the SMEs has been a priority for most governments as a

way of promoting development and empowering the people.

State Support Given to Entrepreneurial Sector in China

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China’s economy has significantly transformed more than any other economy since the

1970s. The most important economic and industrial sectors in China, including communication,

transport, energy, manufacturing, mining, and financial services, were under the control of the

Chinese government by 1978 (Iacob 2015, p. 78-80). The revival of the Chinese economy saw

the introduction of new policies in a bid to boost the economic growth of the nation. This was

followed by the revival of the public sector and the privatization of the state-controlled

companies to improve the national economy. The second stage of the economic reforms came

towards the end of the 1980s and beginning of the 90s which set the stage for the Chinese

entrepreneurs to exploit the cheap cost of production.

The evolution and government promotion of the Chinese economy can be divided into

various generations. The first generation was the promotion of the manufacturing sector at the

beginning of the 1990s. This was the first generation to experience the Chinese economic

reforms and was part of the first group of firms in China (Iacob 2012, p. 17). The success of this

generation was as a result of the better economic policies introduced by the government that

seeks to improve the private sector and also relinquish state control in major industries. The

government introduced incentives to local companies and entrepreneurs seeking to invest in the

manufacturing industry. The first generation is celebrated as the people that significantly

transformed the Chinese economy. These entrepreneurs invested significantly in the

manufacturing business and contributed to the emergence of China as the manufacturing hub

China (Iacob 2012, p. 17).

The second generation was the entrepreneurs within the private sectors which became

popular towards the end of the 1990s. This group contributed immensely towards the growth of

the service industry at a rapid pace and the increase in the income of the entire population. The

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government improved the structure of the private sector through incentives to expand the

economy. Also, the implementation of the technology-driven development model by the

government helped increase the number of jobs available in the service industry China (Iacob

2012, p. 18). Moreover, the government improved the education of the population to increase

knowledge and skills in the key sectors of the service industry such as the financial markets.

Likewise, the third generation was the consolidating the global resources due to the

disappointing performance of China in the international markets. The Chinese firms were using

the traditional approaches and the Chinese entrepreneurs were looking for improved global

strategies to enhance their global competitiveness. The government introduced education

programs to the entrepreneurs to improve their skills and knowledge in the global market. Also,

the government sought to counter the effect of imbalance of trade due to increased imports China

(Iacob 2012, p. 19).

Iacob (2012, p. 20) argues that the Chinese government significantly transformed the

entrepreneurial sector through improvement on the traditional education setting. The nation

introduced an energetic and open policy geared towards attracting advanced technology and

promoting the knowledge of the population on new technology. The government improved the

private economy by improving the levels of education to increase the knowledge sources in three

stages. The early stage was achieved through transforming the Chinese society between 1976 and

1986 by enunciation and supporting education by the Chinese government as a strategic

objective (Iacob 2012, p. 20). The second stage occurred between 1987 and 1999 by increasing

the access to education and technology was brought to the top position of the nation’s

development plan through increased knowledge in science and education. Moreover, the third

stage (2000 to present) is geared towards ensuring modernization of the education system by

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reviewing the curriculum to ensure students get updated knowledge and skills that are viable in

the current global market (Iacob 2012, p. 20).

The government introduced the laws of the socialist system that facilitated a high level of

participation of women in the Chinese economy. The Chinese government pleaded for gender

equality and sought to promote equality in all areas of the economy, including employment and

education. This has significantly promoted the status of Chinese women and their contribution to

the economy. Currently, the percentage of women employees is 44%, higher than the global

average of 34.5% (Hu and Zhu 2006, p. 33-37). 25% of the women in the working class are

national entrepreneurs, of which 41% are private business owners who conduct independent

activities (Xiaosi 2011, p. 1-8). This shows the government’s role in promoting women

entrepreneurs and its contribution to the employment sector and the economy at large.

According to Zeng (2010, p. 9), the Chinese government established four special

economic zones (Xiamen in Fujian, and Shenzhen, Zhuhai, and Shantou in Guangdong Province)

by 1980. Although the primary goal for the establishment of the economic zones was to enhance

economic development in the region, the government also promoted entrepreneurship. The

government introduced special financial, trade and investment privileges to entrepreneurs

establishing business operations in these regions. The incentives were in the form of tax breaks

and financial aid. The SEZs had an immediate impact, attracting 59.8% of China’s total foreign

direct investment by 1981 (Zeng 2010, p. 9). Additionally, the government also introduced

economic and technological development zones (ETDZs), and high-tech industrial development

zones to achieve the state’s economic agenda. The introduction of such policies and these zones

has significantly promoted the entrepreneurial sector due to access to incentives and other

benefits (Zeng 2010, p. 10)

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The Chinese government has introduced policies meant to promote mass

entrepreneurship and innovation as well as promote the growth of start-up companies. The state

government has already set aside Rmb 2.1tn (approximately $320 billion) to invest and support

emerging entrepreneurs in the technology sector. Also, the state approved the introduction of an

integrated digital business license registry system to enable a one-stop registration for the foreign

firms as well as the domestic firms (Robinson 2016, p. 2-5). This mass entrepreneurship and

innovation is an effective driver for economic growth and a consistent transition between

traditional and new growth engines. For instance, the Jinan City municipal authorities offered

Robot Phoenix, an industrial robotics company, Rmb2 million ($300,000) in 2012 to help

develop their business model, which did not need to be repaid (Robinson 2016, p. 6-8). This

shows the commitment of the Chinese government in promoting entrepreneurship and the steps

taken to achieve this and promote economic growth.

State Support Given to Entrepreneurial Sector in The US

The Global Entrepreneurship Monitor identifies several key entrepreneurial framework

conditions that are important to the success of the organization. These conditions include

government policy, entrepreneurship education, commercial and legal infrastructure,

entrepreneurship finance, R & D transfers, entry regulations, physical infrastructure, and

government entrepreneurship programs. According to Kegel 2016( p. 20), entrepreneurship

finance is one of the key determinants to the success of the entrepreneurial activities is the access

to finance for start-ups. The availability of finance in terms of equity and debt for the SMEs is as

a result of the mature and deep financial ecosystem that is present in the US. The existing

financial system in the US has many players in the public and private sectors and boosts the local

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businesses. The access to finance is easy in the US, and it is ranked first among the G20 nations

in the EY G2o Entrepreneurship Barometer (Kegel 2016, p. 20).

Kegel (2016, p. 20) argues there are various government entrepreneurship programs that

are aimed at helping SMEs at all levels of the government. There are several business

accelerators and incubators institutions in the US developed to help entrepreneurs launch new

businesses in the US. Although there is a sizable support system in the US, for the

entrepreneurial sector, it is ranked eighteenth among the G20 nations for government support

within the US. However, this is changing, with the increased investment from the Small Business

Administration which set aside $2 billion for entrepreneurial incubators and mentorship

programs. This is part of the Start-up American Partnership that seeks to foster the alliance

between universities, American corporations, foundations of thought, and innovative

entrepreneurs to success the competitiveness and potential of American SMEs (Kegel 2016, p.

21). Likewise, the US has seen a tremendous increase in the availability of college courses

geared towards small business management over the past fifteen years. The US is ranked third in

education and training among the G20 nations (Kegel 2016, p. 21).

R & D transfer is interested in the amount of investment to which the national research

and development will lead to a new commercial opportunity. Investment in research and

development is high in the US and is ranked third among the G20 nations. Equally important, the

US's physical infrastructure is excellent with a balance in the entire nation. Moreover, there are

no entry regulations for foreign investments and companies, thus making it easy to do business

(Kegel 2016, p. 22). Equally, the US government has several policies in place that promotes

entrepreneurship through several mechanisms, including partnering with US companies, investor

groups, and non-governmental organizations. Such programs include the Global Innovation

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through Science and Technology (GIST), Global Entrepreneurship Summit (GES), Global

Entrepreneurship Week (GEW), Global Entrepreneurship Program, Mexico-United States

Entrepreneurship and Innovation Council (MUSEIC), and SelectUSA (GES 2017, p. 5-8)

Despite the steps taken by China, its economy s still development and is characterized by

a huge economic imbalance throughout the nation. Although China is a manufacturing hub, its

existing policies are not as mature as in the US. As such, the US has a better entrepreneurial

environment with greater access to funds for start-ups. However, the Chinese market is far much

cheaper due to the presence of incentives that make the factors of production cheaper than in the

US. Jonas et al. (2013, 5-8) further argue that access to funding is the major bottleneck to

entrepreneurial growth in China. China does not have a well-established system of credit, and the

banking system often sets standards that are too high for small businesses. Equally important, the

banking system is operated by the State, and thus the private sector finds access to funds

challenging since the banks in China prefer state-owned enterprises and other low-risk

businesses. Laws in China bars inter-company lending, preventing small businesses from

accessing loans from other businesses. As such, access to finance for SMEs is limited to two

sources: illegal off-the-book loans from loan sharks or friends and equity investment. This makes

the entrepreneurial sector in the US far much better (Jonas et al. 2013, 5-8).

Recommendations

I would recommend an entrepreneur to invest in the US market rather than the Chinese

market. China is a developing economy, and the infrastructure system does not cover the entire

market. Equally important, the banking system in China is not as effective ad mature as the US.

Access to funds is easier in the US, unlike China whereby SMEs can only obtain funds from

illegal off-the-book loans and equity investment.

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Conclusion

In conclusion, the entrepreneurial sector is the backbone of the global economy in many

nations. As such, governments have introduced various policies to support the existing system.

China is still a developing nation and has introduced various strategies to support entrepreneurial

activities. The revival of the Chinese economy saw the government introduce strategies to

promote the key sectors of the economy, including education, manufacturing, service, and

transport industries. This was followed by privatization of these sectors and introduction of

incentives to encourage investment from local and global entrepreneurs. Also, the government

introduced laws to encourage participation of women and also formed special economic zones

that offered various incentives to entrepreneurs. On the other hand, the US is a mature economy

with policies and an environment that supports entrepreneurship. However, the US market has a

more conducive environment due to the presence of a stable and strong banking system that

offers funds to entrepreneurs.

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