Tuesday, August 3, 2010

Inside the minds of Indian and Chinese entrepreneurs

There is no dearth of commentary on economic comparison of India and China. A new study by the Legatum Institute says that Entrepreneurs in both the country are bullish about the economy. When most entrepreneurs in India start on their own, for being their own boss, Chinese entrepreneurs do it for money. Many Chinese owe their entrepreneurial spirit to the state, when such is not the case in India. Chinese entrepreneurs are more dependent on banks, when Indian are dependent on family resources, writes Ryan Streeter in The Wall Street Journal.


"The past few years have seen no shortage of commentary about the comparative economic environments in China and India, where growth and the rise of enterprising classes have gone hand in hand. Yet we have very little data to help us understand how entrepreneurs in these countries think and what motivates their decisions and actions. A new survey of more than 4,000 entrepreneurs, business managers and aspiring entrepreneurs, conducted by YouGov and released today by the Legatum Institute, sheds light on the countries' respective enterprising classes—and raises some questions for policy makers and investors."

"Entrepreneurs in both countries share a high degree of bullishness. "

"Looking beyond the economic optimism, however, two different styles of entrepreneurship emerge. The differences start with why entrepreneurs launch businesses in the first place. Asked about their main motivation, the overwhelming majority of Indian entrepreneurs name "being my own boss," while the most popular response in China is earning more money. In this way, Indian entrepreneurs more closely resemble the Western model: American entrepreneurs were more likely to cite "owning my own company" than "building my wealth" as the main reason they launched a business, according to a Kauffman Foundation study last year."

"When asked about other factors inspiring their decision to start businesses, nearly half of Chinese entrepreneurs give answers related to the state's efforts to promote and manage enterprise. Compared to just 9% in India, 23% of Chinese entrepreneurs say what they learned in school or at the university prompted their decision, presumably a result of the government's strategy of using universities to promote entrepreneurship. Chinese business owners cite pro-business actions by the government or pro-business messages in the media (which in China are state-controlled) at three times the rate of their Indian peers."

"This difference in inspiration and motivation manifests itself in many ways. The relational Indian model of business start-ups is evident in enterprise financing, where 49% of business owners rely on family resources to start their enterprise, compared to only 25% in China. Chinese entrepreneurs are much more dependent on banks, with 49% taking out loans compared to 27% in India. Indian entrepreneurs use conventional financing through debt and investors at about half the rate of their Chinese peers. "

"In listing factors important for starting a business, Indian entrepreneurs place nearly as much value on internal personal qualities, such as creativity and the ability to take risks in the face of adversity, as they do access to finance. Access to information and knowledge, for instance, is more important to Chinese entrepreneurs than being creative. This suggests that Chinese entrepreneurs believe business success depends on external market conditions that can be known and manipulated, whereas Indian entrepreneurs regard success as the result of their internal ability to adapt to changing conditions."

"The survey results uncover an unfolding experiment on how best to foster business creation in developing countries. So far, our findings suggest entrepreneurship in India is marked by a kind of sustainability that is less evident in China. Because India's entrepreneurs have succeeded amid dysfunctional government and financial institutions by developing a kind of independent and experimental ingenuity, it stands to reason that the enterprising class would prosper even more were India to reduce barriers to business and clean up corruption. In China it is unclear what will happen if state efforts are no longer sufficient to entice and groom the entrepreneurs its economy needs. "

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