Entrepreneurs in Emerging Markets

Stephen DeAngelis

November 11, 2010

A couple of ways that you can determine if a country is headed in the right direction is by looking at how entrepreneurs are treated by the government and how many opportunities are available for entrepreneurs to exploit. New York Times‘ op-ed columnist Nicholas Kristof points to Oman as one country that has changed it economic fortunes as has produced a rising generation of entrepreneurs [“What Oman Can Teach Us,” 13 October 2010]. He begins by telling us where Oman started its journey four decades ago:

“Just 40 years ago, Oman was one of the most hidebound societies in the world. There was no television, and radios were banned as the work of the devil. There were no Omani diplomats abroad, and the sultan kept his country in almost complete isolation. Oman, a country about the size of Kansas, had just six miles of paved road, and the majority of the population was illiterate and fiercely tribal. The country had a measly three schools serving 909 pupils — all boys in primary grades. Not one girl in Oman was in school. Oman’s capital city, Muscat, nestled among rocky hills in the desert of the Arabian Peninsula, was surrounded by a traditional wall. At dusk, the authorities would fire a cannon and then close the city’s gates for the night. Anyone seen walking outside without a torch at night was subject to being shot.”

Kristof believes that had Oman remained in that sorry condition, it would have become “an incubator for Al Qaeda-affiliated terrorists” just like Yemen. What changed? Kristof explains:

“In 1970, Oman left that fundamentalist track: the sultan’s son deposed his father and started a stunning modernization built around education for boys and girls alike. Visit Oman today, and it is a contemporary country with highways, sleek new airports, satellite TV dishes and a range of public and private universities. Children start studying English and computers in the first grade. Boys and girls alike are expected to finish high school at least. It’s peaceful and pro-Western, without the widespread fundamentalism and terrorism that afflict Yemen. Granted, Yemen may be the most beautiful country in the Arab world, but my hunch is that many of the young Westerners who study Arabic there will end up relocating to Oman because of the tranquility here. It’s particularly striking how the role of women has been transformed. One 18-year-old university student I spoke to, Rihab Ahmed al-Rhabi, told me (in fluent English) of her interest in entrepreneurship.”

Entrepreneurs inevitably emerge as opportunities are presented. As Oman modernized and its children were educated, opportunities weren’t hard to find. Kristof goes on to tell us a bit more about Ms. Rhabi:

“Ms. Rhabi was a member of the Omani all-girls team that won the gold medal in an entrepreneurship competition across the Arab world last year. The contest was organized by Injaz, a superb organization that goes into schools around the Arab world to train young people in starting and running small businesses. The stand-out young entrepreneurs in Oman today are mostly female: 9 of the 11 finalists in this year’s Oman entrepreneurship contest were all-girl teams. The winning team bowled me over. The members started as high school juniors by forming a company to publish children’s picture books in Arabic. They raised capital, conducted market research, designed and wrote the books and oversaw marketing and distribution. ‘We’re now looking at publishing e-books,’ explained Ameera Tariq, a high school senior and a member of the board of directors of the team’s book company.”

Kristof’s article wasn’t touting the benefits of entrepreneurism. He was attempting to show “that one of the best and most cost-effective ways to tame extremism is to promote education for all.” My belief is that education opens up opportunities and opportunities are most often exploited by entrepreneurs. Many people in Egypt believe that education is the missing to making them more prosperous [“Innovative path for Egypt’s entrepreneurs,” by Ian Wylie, Financial Times, 10 October 2010]. Wylie’s report is focused on the new campus of the American University in Cairo. He reports that “the Cairo desert campus is one of the first nodes in a network of universities and business schools that the US government is using to support and educate entrepreneurs in Egypt and other Muslim-majority countries.” Wylie continues:

“‘Tell me what innovation we Egyptians have done since the pyramids?’ asks Hassan Azzazy, a professor at AUC, who points out that Egypt was ranked last in a study of education in 30 countries by Global Entrepreneurship Monitor, a not-for-profit academic research consortium. ‘Where are all the entrepreneurs? The Egyptian mindset needs to be rewired. We are not China – but we are blessed with a large number of smart people, so education has to be the missing link.’ It was to Cairo that Barack Obama, US president, came last year to announce foreign policy toward the Middle East and that promoting entrepreneurship would be the platform for encouraging economic, political and social change. It was Egypt that Mr Obama selected as the pilot country for a new Global Entrepreneurship Program. Some 17 organisations have signed up to this US-inspired effort to educate Egyptian entrepreneurs – including AUC and Nile University and their business schools, the Ministry of Communications and Information Technology and the Egyptian Junior Business Association.”

Turning Egypt into a land of entrepreneurs won’t be as easy it has been in Oman. Wylie explains:

“Throughout its history, Cairo has been a crossroads in the trade of spices, silk, incense and gold between Africa, the Middle East, Europe and the Asia. But today Egypt is far from being a top entrepreneurial economy; the World Bank ranks it 106th among 183 economies in terms of the ease of doing business. More significantly, says Prof Azzazy, young Egyptians still hesitate to take the entrepreneurial path. According to Prof Azzazy, the prevailing culture discourages entrepreneurship but exalts positions in academia or the government. It does not help that going bankrupt is still a crime punishable by imprisonment. ‘Parents in Egypt will tell you, I want my son to have a government job, it’s secure. Their children will say, I would like to start a business … but I might lose money. We need to change this.'”

Wylie points out that “Prof. Azzazy is not a professor of business but chemistry.” The professor was exposed to the benefits of entrepreneurism while he teaching at the University of Maryland, “where he helped teach biotechnology students the skills and training to spin out their ideas into companies.” Since returning to Egypt, he has “introduced entrepreneurship courses in AUC’s school of science to graduate students and in the engineering school to both degree and graduate students.” Wylie continues the professor’s story:

“In 2008, he was appointed by the Ministry of Industry to work alongside ETF, a European Union agency that supports education in countries surrounding the EU and has marked entrepreneurial learning as a priority. With the representatives from 16 other countries, Prof Azzazy helped draft entrepreneurship education indicators and policy objectives for both government and universities. ‘We agreed that universities must implement entrepreneurial learning across campus and achieve a critical mass of professors who can teach it.’ After hosting a conference at AUC on the topic, Prof Azzazy convinced university provost Lisa Anderson to pilot the indicators. ‘But AUC has 6,000 students, compared with Cairo University, which alone has 250,000,’ says Prof Azzazy. ‘We need to transfer this experience to larger universities, so we are in the process of developing a national policy to introduce entrepreneurship.’ Prof Azzazy works in partnership with AUC’s School of Business. ‘I can teach biotech entrepreneurship, ethics and intellectual property, but I do not teach business planning or marketing,’ he says. ‘When it comes to that, we bring in faculty from the school of business. I know the science, so I can speak the same language as my students, but we respect expertise and we do not cross boundaries. We’ve also been thinking about introducing entrepreneurship into the core curriculum so that anyone coming to AUC, whether they are doing music or engineering, would have to do it, regardless of their discipline.'”

In past posts, I have noted that there are some excellent cross-discipline programs being offered in American universities. Both students and professors like these programs because they expose participants to new ideas and new fields. This cross exposure also creates a good environment for discussing solutions to emerging challenges from different perspectives. Wylie continues:

“Last year, AUC restructured its School of Business to align undergraduate and graduate programmes with three themes: entrepreneurship, innovation and leadership. The school is also the location for one of Goldman Sachs’s 10,000 Women in Leadership and Entrepreneurship Centres, where it delivers certificate programmes in partnership with the Wharton School at the University of Pennsylvania. The 10,000 Women initiative aims to boost the number of women in developing nations who receive management training. ‘Our mission is to educate principled, innovative entrepreneurs who can make a difference,’ says Sherif Kamel, dean of the business school. ‘It’s more than just a fashion. We’ve been teaching entrepreneurship courses for 20 years but last year we decided to look at it differently. … I think entrepreneurship is a very horizontal platform – knowledge should be shared by everyone and not dominated by one school,’ says Prof Kamel.”

In an op-ed piece in the New York Times, singer and activist Bono, discussed the importance of entrepreneurs and governments working together in other African states [“Africa Reboots,” 17 April 2010]. Like Bob Geldof, Bono understands that African nations need more foreign direct investment (not more aid) to help them claw their way out of poverty. For more on what Geldof is doing, read my post entitled An Update on Africa, Part 2: Mining, Oil and Gas, and Telecommunications. Entrepreneurs are critical for creating investment opportunities that will attract foreign direct investment. But, as Bono writes, “Entrepreneurs know that even a good relationship with a bad government stymies foreign investment; civil society knows a resource-rich country can have more rather than fewer problems, unless corruption is tackled.” He continues:

“It’s no secret that lefty campaigners can be cranky about business elites. And the suspicion is mutual. Worldwide. Civil society as a rule sees business as, well, a little uncivil. Business tends to see activists as, well, a little too active. But in Africa, at least from what I’ve just seen, this is starting to change. The energy of these opposing forces coming together is filling offices, boardrooms and bars. The reason is that both these groups — the private sector and civil society — see poor governance as the biggest obstacle they face. So they are working together on redefining the rules of the African game.”

Bono goes on to discuss some of the entrepreneurial “luminaries” that leading the charge in Africa. We know, of course, that even more entrepreneurial activity is taking place elsewhere around the globe. Let’s turn from Africa to Asia. In India, entrepreneurs are slowly emerging from a lingering caste system [“Business Class Rises in Ashes of Caste System,” by Lydia Polgreen, New York Times, 10 September 2010. Polgreen reports:

“India is enjoying an extended economic boom, with near double-digit growth. But the benefits have not been equally shared, and southern India has rocketed far ahead of much of the rest of the country on virtually every score — people here earn more money, are better educated, live longer lives and have fewer children. A crucial factor is the collapse of the caste system over the last half century, a factor that undergirds many of the other reasons that the south has prospered — more stable governments, better infrastructure and a geographic position that gives it closer connections to the global economy. ‘The breakdown of caste hierarchy has broken the traditional links between caste and profession, and released enormous entrepreneurial energies in the south,’ said Ashutosh Varshney, a professor at Brown University who has studied the role of caste in southern India’s development. This breakdown, he said, goes a long way to explaining ‘why the south has taken such a lead over the north in the last three decades.’ India’s Constitution abolished discrimination on the basis of caste, the social hierarchy that has ordered Indian life for millenniums, and instituted a system of quotas to help those at the bottom rise up. But caste divisions persist nonetheless, with upper castes dominating many spheres of life despite their relatively small numbers.”

Although remnants of the caste system continue to be an anchor to economic development in some parts of India, overall the country is prospering because it has unleashed an entrepreneurial fever that has exploited all of globalization’s benefits. A Wall Street Journal article claims that “Indians believe they succeed despite the state” and that Chinese entrepreneurs believe they succeed “because of it” [“Asian Entrepreneurs Are Bullish on the Future,” by Ryan Streeter, 3 August 2010]. Streeter, a senior fellow at the Legatum Institute in London who helped conduct the survey about which he writes, points out that, despite their feelings for their governments, Indian and Chinese entrepreneurs see a bright future ahead. He continues:

“A new survey of more than 4,000 entrepreneurs, business managers and aspiring entrepreneurs, conducted by YouGov and released this week 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 are bullish. Nearly half of the respondents believe their societies are more welcoming of entrepreneurial activity today than 10 years ago, and only one-quarter in India and one-third in China believe 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.”

One of the most interesting things about the study reported on by Streeter is the conclusion it comes to about differences in motivations for becoming an entrepreneur in India and China. He explains:

“The survey reveals two different styles of entrepreneurship have emerged. The differences start with why entrepreneurs launch businesses. 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. Indian entrepreneurs more closely resemble American entrepreneurs, who are more likely to cite ‘owning my own company’ than ‘building my wealth’ as the main reason they launched a business, according to a 2009 Kauffman foundation study. When asked what other factors inspire them 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 that what they learned in school or at university prompted their decision. This presumably reflects 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. Twenty-one percent of Indian entrepreneurs cite family expectations as the source of their entrepreneurship, compared to 9% of Chinese. Twenty-seven percent of Indian entrepreneurs cite the inspiration they glean from knowing another entrepreneur, compared to 18% of Chinese.”

Streeter’s final conclusion is that Indian entrepreneurial activities may have longer legs than Chinese entrepreneurial activities. He explains:

“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.”

I see no indication that the Chinese government is about to change its support for entrepreneurs; but, the study’s conclusions are nonetheless interesting. The thread that runs through each of the above articles is that a large number of entrepreneurs are found in any healthy and growing economy. It’s a lesson that should be learned by emerging market and developed countries alike.