Business Asia: Inside the Mind of a Risk Taker

By RYAN STREETER

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. Nearly half of the respondents believe their societies are more welcoming of entrepreneurial activity than they were 10 years ago, and only one-quarter in India and one-third in China believe that the global financial crisis has seriously hampered the prospects for new businesses. The vast majority believe their lives will improve dramatically in the next five years.

Read more in Business Asia

• India's Big Opportunities for Little Companies
• Automating the Dragon
• Formula One's Race for Asia

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.

Indian entrepreneurs paint a more relational and organic picture. Twenty-one percent cite family expectations as the source of their entrepreneurship compared to 9% in China, and 27% of Indians cite the inspiration they glean from knowing another entrepreneur, compared to 18% in China.

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. This raises some interesting questions for further study. Are Indian entrepreneurs more careful about working out the kinks in their business models before they start because they know a default will hurt their friends and family instead of a faceless bank? And are Chinese banks as good as Indian families at evaluating the business merits of an entrepreneur's idea before extending credit?

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.

There are also significant differences in how entrepreneurs see themselves relating to their policy environments. In India, 81% of business owners say that jugaad, the ability to improvise and find ways around prohibitive rules and institutions, is important to business success. In China, 93% of business owners say guanxi, the networks and relationships (primarily with the state) necessary to succeed in business, are important to their own success. Generally, enterprising individuals in India believe they succeed in spite of the state, while in China they think they succeed through their connections to it.

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.

Mr. Streeter is a senior fellow at the Legatum Institute in London.

via online.wsj.com

Posted via email from soulhangout's posterous