Entrepreneurial exit rate is lowest in India among BRICS and Factor-Driven countries: GEM Report

Entrepreneurial exit rate is lowest in India among BRICS and Factor-Driven countries: GEM Report
  • In India, 2.3% adults reported discontinuation of their business in 2015-16, among Factor-driven and BRICS countries surveyed by Global Entrepreneurship Monitor
  • 47% respondents discontinued because of unprofitable business; 22% due to personal reasons; 13% due to lack of finance

India has lowest entrepreneurial exit rate among factor-driven and BRICS countries surveyed by Global Entrepreneurship Monitor (GEM), a global consortium researching on entrepreneurship. According to GEM India Report, 2.3% adults reported discontinuation of their business in 2015-16, among Factor-driven and BRICS countries surveyed by GEM consortium.

According to World Economic Forum, those countries that compete primarily on the use of unskilled labour & natural resources are categorised as factor-driven economies. In factor-driven economies companies compete on the basis of price as they buy and sell basic products or commodities. As per GEM Report, Burkina, Faso, Cameron, Senegal, India, Iran, Kazakhstan and Russian Federation are among the factor-driven economies; while Brazil and China are part of Efficiency-driven economies.

Remarking on the readings of the survey, Dr. Sunil Shukla, GEM India Team Leader and Director, EDII-Ahmedabad said, “It is extremely important to understand the reasons behind business discontinuity. It is evident that start-ups and launch of new businesses are dependent on the exit policy for businesses in the country. It may be possible that some form of discontinuation of business may help entrepreneurs in unlocking valuable resources and utilising them in more optimal allocations. Hence, discontinuation does not necessarily have negative impact on an entrepreneur.”

The consortium which surveyed around 3400 adults across 23 states found that 47% of entrepreneurs discontinued because of unprofitable venture, 22% exited due to personal reasons; while 13% had financial constraints and 8% discontinued as they got opportunity to sell business. GEM measures Discontinued Business Rate as the percentage of individuals aged 18-64 years who owned a business, but discontinued it for different reasons during the past 12 months.

Source: GEM India Report 2015-16

Sixty-two countries are part of GEM Consortium that researches on trends in entrepreneurship in these countries. The GEM India Team comprises of the Entrepreneurship Development Institute of India (EDII), Ahmedabad (Lead Institution), Centre for Entrepreneurship Development Madhya Pradesh-CEDMAP (Bhopal) and Jammu & Kashmir Entrepreneurship Development Institute-JKEDI (Srinagar). The GEM survey provides data for researchers, knowledge on global entrepreneurship for educators and practitioners, and information to guide policy makers in formulating effective and targeted policies and programs to stimulate and support the efforts of entrepreneurs.

The survey also studied motivational aspect of starting businesses to better understand entrepreneurial activities. The GEM conceptual framework uses necessity-driven, opportunity-driven and improvement-driven motives to understand the entrepreneurial activity. According to survey, almost 79% of early-stage entrepreneurs were motivated to start a venture by some business opportunities in India, which is the highest amongst BRICS economies. Correspondingly, only 19% of the early-stage Indian entrepreneurs were forced into entrepreneurship due to a lack of other alternatives and 34% of the adult population were improvement-driven entrepreneurs.

Source: GEM India Report 2015-16
Source: GEM India Report 2015-16

Dr. Shukla highlighted the fact that during year 2015-16 and 2016-17 there is an incremental growth in Improvement-Driven-Entrepreneurial Activity in India. “In year 2015/16 the Improvement-driven entrepreneurial activity in our country was 34.3% which improved to 43.3% in 2016/17. This shows that during the year innovations in processes as well as business models have happened in new and existing businesses,” he said.

The survey has suggested recommendations to facilitate government policies surrounding regulatory entry and barriers to growth, availability of liquidity and capital, labour market, R&D, commercialisation and knowledge spillover, taxation, intellectual property rights, and bankruptcy. There is also a need for further capacity building through education and training, restructuring of incentive and tax structures to promote more opportunity-driven entrepreneurship.

Shweta Jain
A Chartered Accountant having a great passion to elevate the deserving startups of India. Working closely with Budding Entrepreneurs to give them complete knowledge and knowhow about Startup World.