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Early-stage entrepreneurship in Russia amid global crisis: forms and mechanisms of adaptation

2009
Department: Subdepartment of Statistics

The project is a continuation of the study of early-stage entrepreneurship in Russia that was launched in 2006. The project has been carried out in compliance with GEM methodology as a part of the GEM longitudinal cross-national project.Global Entrepreneurship Monitor (GEM), started in 1999 (Reynolds et al., 2000), is a new step in studying empiric relation between the level of entrepreneurial activity and economic growth in member countries of the project.

The specifics of this project consist in the focus of the research on pre-starting and early-stage entrepreneurial activity, which is hard to measure using standard methods of national and international statistics. This project is especially relevant in the context of the economic crisis which has been seen since the autumn of 2008. The data obtained in May-June 2009 permits evaluation of the crisis impact on dynamics of entrepreneurial activity of population, parameters of its structure (socio-demographic, geographic) and its motivation for entrepreneurship, the change in strategies of entrepreneurial activity (in particular, the readiness to start a business by oneself or together with a peer, the use of existing business to start a new one, to attract external financing and its sources etc), as well as on the causes and expected consequences of withdrawal of active entrepreneurs from business.

The uniqueness of the work consists of, first and foremost, the absence of similar comparative panel longitudinal surveys of entrepreneurship not only in academic projects, but also in state statistics of the Russian Federation.

Monitoring and analysis of entrepreneurship and framework conditions of entrepreneurial activity in the context of this project provided for the realization of a set of mutually related academic and practical aims:

1. The representative survey provided data characterizing the entrepreneurial potential of Russia broken down into several economic and socio-demographic features:

  • stages of starting the entrepreneurial activity (potential, emerging, new business owners),
  • gender composition,
  • motivation specifics (forced and voluntary entrepreneurship),
  • sources of financing (including the role of informal investing, including from the nearest surrounding and business-angels),
  • innovation activity (new products and new technologies),
  • geographic distribution in terms of several parameters.

2. To characterize entrepreneurial framework conditions (EFC) in several Russian settlement types and examine factors, determining the structure of external EFC from the point of view of favorableness of business climate for starting-up  entrepreneurs.

The following tasks have been completed:

  1. information about entrepreneurial potential development in Russia in 2006-2008 has been collected;
  2. a forecast of start-up entrepreneurship financing hs been formulated;
  3. areas of institutional and infrastructure failures of the systems supporting entrepreneurship have been identified, constraining the scale of entrepreneurial activity of the population, which is a factor of economic growth;
  4. positive and negative factors of innovative starting entrepreneurship development have been determined;
  5. analysis of geographic spread specifics early-stage entrepreneurship and its activity has been carried out;
  6. the closeness and statistical significance of the connection between the changes in entrepreneurial activity and GDP have been proved;
  7. several special indices, tested in across the world, using the GEM methodology have been calculated, including the TEA index,
  8. the dynamics of entrepreneurial activity of the Russian population have been compared to tendencies abroad (international comparison).

The results of international comparisons obtained in 2009 characterized Russia as a country with a low level of entrepreneurial potential development and an unfavorable structure. However, the growth in the level of early-stage entrepreneurship in Russia in 2009 is in line with the trends in countries with low or even below average ТЕА. However, early stages of Russian entrepreneurship are characterized by even more rapid growth. Due to this, Russia moved up in the GEM rating by 3 positions in 2009.

Still, negative trends can’t be ignored– amid the crisis, the growth in the activity of emerging entrepreneurs markedly slowed: in 2008 the growth rates were about 30%, while in 2009 – slightly over 2%. It is not merely chance that the level of early entrepreneurship in Russia remains one of the lowest in GEM.

Together with economic factors (drop in effective demand and a fall in financial resources of households) that negatively affect people’s readiness and potential for an entrepreneurial start, there are a number of factors of a socio-psychological and socio-cultural nature that may be offset by measures of pro-active policy of entrepreneurship facilitation.

Overall, in 2009 we noted the following changes in financial strategies of early stage entrepreneurs:

  • a decline in the level of self-financing (the share of entrepreneurs that are inclined to raise funds from external sources increased);
  • a rise in the average size of starting capital (as a result of increasing ratio of opportunity based entrepreneurship among early-stage entrepreneurs);
  • activity concentration in  areas where effective demand is present (services);
  • a drop in demand for banking funding, considerably increasing the role of relatives in business financing;
  • an increase of return expectations among early-stage entrepreneurs.