Worldwide Business Start-Ups

by Moya K. Mason

What is the Average Number of New Businesses That Start Up Worldwide Each Day?

I didn't just begin with the Global Entrepreneurship Monitor of international businesses, but all paths kept leading back to them. I had first thought the best place to start was the World Bank, but none of their reports and none of their researchers had the figures we need. I also searched through hundreds of reports and contacted small business organizations around the world hoping they would have access to international numbers, but they do not. They say it is difficult enough to compile their own national numbers. This is what I found out:

Email communication with Dr. Paul D. Reynolds, Director, Research Institute, Global Entrepreneurship Center:

"Not only do those figures not exist world wide, they don't really exist for most countries, but this is what we do know:

World wide, there are about 300 million persons trying to start about 150 million businesses. About one third will be launched, so you can assume 50 million new firm births per year. Or about 137,000 per day. As firm birth and death rates are about equal, the same number of active firms, say 120,000 probably terminate trading each day--world wide. This is the only source of comparative data on start-up and closure activity internationally. You can find some data for the US on the SBA, Office of Advocacy website, but for most countries, the figures either do not exist or are not compiled."

But as I later found out, Dr. Reynolds was only talking about the countries that participate in the Global Entrepreneurship Monitor (GEM) when he gave me those stats. Here is what I found out in an online report:

"Total human population of 40 GEM countries is almost 4 billion out of a world population of 6.3 billion; 63% of the world population is represented in this assessment. Among these 4 billion, 2.4 billion are in the age range of 18-64 years, which approximates the working years in most countries. Among this 2.4 billion, about 12% or 297 million are active in trying to get 192 million businesses past the initial launch and through the initial three years of operation.

The country variation is substantial, from the 19 thousand people in Iceland trying to establish about 8,000 businesses to 107 million in India trying to establish 85 million businesses. The countries in Table 6 are rank-ordered by the total number of persons active in entrepreneurship, so some large countries with low prevalence rates-such as Russia-may be higher on the list than expected and some small countries with high rates of activity-such as New Zealand-may be lower on the list.

The adult population survey inquires about any ownership of an existing business. By adjusting for the size of the ownership group it is possible to estimate the total number of active businesses in each country. The total for the 40 GEM countries is about 347 million, from 15 thousand in Iceland to 142 million in China. Using the same procedures, the number of existing firms that may be considered entrepreneurial can be estimated at 37 million for all 40 countries, from 1,000 in Iceland to 19 million in China. While these estimates could be off as much as 20-30%, they have the advantage of being standardized across a wide range of countries at different levels of development.

Extrapolation to the other 37% of the world population not covered by GEM assessments, most in developing countries, would suggest a total of 472 million nascent entrepreneurs are trying to start 305 million firms; another 89 million owner-managers of 58 million existing businesses are emphasizing an entrepreneurial focus."

There are substantial national consequences for differences in entrepreneurial activity. To start with, across the GEM countries about 300 million are involved in trying to start almost 150 million new firms. Another 57 million are the owner-managers of 37 million established firms attempting innovation and growth. This is accompanied by about US$360 billion of informal investments and US$32 billion in venture capital investments in new ventures. As a global phenomenon, entrepreneurial activity absorbs a substantial amount of human and financial resources.

People get involved in starting new firms for a number of reasons. One of the most basic distinctions is between those who seek to take advantage of unique business opportunities and those who cannot find suitable work and start a business to survive. The first may be considered "opportunity entrepreneurs" and the second "necessity entrepreneurs." They were identified across all GEM countries beginning in 2001.

Using the formula above, I think this means that with 472 million entrepreneurs worldwide attempting to start 305 million companies, approximately 100 million new businesses (or one third) will open each year around the world. I think we can safely say that this stat is the best we can find today.

Dr. Reynolds also said that firm birth and death rates are about equal. I found that statistic over and over again in a large number of reports. The ratio is almost one failure for each startup. Roughly the same numbers of firms start and close each year. The dynamic nature of business is referred to as "creative destruction," the process through which healthy, vibrant firms create innovations, often to the detriment of those that fail to innovate and stay competitive.

"The developing countries of Asia and Latin America are far ahead of Europe in starting new businesses, according to a recent survey of global entrepreneurial activity. But few start-ups have the potential to make an impact on jobs and growth, and a negligible number benefit from venture capital, with the vast majority reliant on informal funding. The 2002 annual survey by the Global Entrepreneurship Monitor (GEM) was carried out across 37 countries representing 92% of world GDP. It finds that 286 million people, 12% of the workforce in these countries, are engaged in starting or running a new business, implying a global figure of about 460 million. "We were quite shocked by how high the index is in the developing countries," admits Paul Reynolds, the GEM project co-ordinator. "Only now do we have a fuller understanding that half of the people in many developing countries are doing it out of necessity because they cannot find work, and that is what drives the rate up so high.""

There is a distinction between people who are voluntarily pursuing an attractive business opportunity (opportunity entrepreneurs) and those who are doing it because they have no other source of income (necessity entrepreneurs) is key to understanding many, although not all, of the national differences. As one might expect, the number of necessity entrepreneurs is smallest in countries with developed welfare systems.

There is a high failure rate of small business in Australia although there are various meanings of "failure" and disagreement on the actual rate.
http://www.sbeducation.info/downloads/sbfail.pdf

Businesses close for many reasons, and not only because they fail. That is important to keep in mind.


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