The Role of Entrepreneurship in Emerging Economies
Entrepreneurship is crucial in developing and emerging economies since it catalyzes economic progress, job creation, innovation, poverty alleviation, and social impact. While developed and advanced economies are already benefitting from entrepreneurial ventures, are emerging markets able to reap the same rewards? Creating an environment conducive to venture building in emerging markets through better policies, support, and financial benefits will be vital in growing the number of business creators and innovators in the region.
In this blog, we will explore the significance of entrepreneurship in emerging economies, examine the current state of entrepreneurship in these regions, and discuss the challenges entrepreneurs face along with solutions to combat these obstacles.
The Importance of Entrepreneurship in Emerging Economies
Economic growth and job creation
Entrepreneurship drives economic growth in emerging countries since new businesses and ventures allow entrepreneurs to introduce innovative products and services, create employment opportunities, stimulate market competition, attract foreign investment, and contribute to the economy's productivity. The importance of SMEs (Small and medium enterprises) built by entrepreneurs is highlighted by UNCTAD’s research stating that small businesses represent 90% of jobs worldwide and 70% of formal jobs in emerging markets.
Innovation and technological advancement
Emerging economy entrepreneurs identify market gaps, develop new ideas, and introduce disruptive solutions. According to McKinsey, 84% of executives think innovation is essential for companies to thrive in today's faced-paced world.
Through their innovative endeavors, entrepreneurs drive technological advancements, promote knowledge transfer, and foster a culture of continuous development, enhancing the competitiveness of emerging economies in the global marketplace.
Poverty alleviation and social impact
Entrepreneurs can empower individuals and communities at the base of the pyramid, which consists of over 4 billion people earning less than $5 a day, per Havard Business Review’s 2011 publication. Micro, small, and medium enterprises (MSME) established by entrepreneurs can improve their standard of living by creating jobs and income opportunities for the poor, including women and youth. Moreover, small businesses are vital in addressing societal challenges by offering solutions to pressing issues such as healthcare, education, renewable energy, and access to clean water.
The Current State of Entrepreneurship in Emerging Economies
Entrepreneurial environment and infrastructure
The entrepreneurial environment in emerging economies is gradually evolving, with governments and international organizations recognizing its importance. Initiatives such as policy reforms, streamlined regulations, and the establishment of incubators and accelerators have created an ecosystem conducive to entrepreneurship.
As per the World Economic Forum’s NECI (National Entrepreneurial Context Index) score, emerging nations like the United Arab Emirates (ranked 1), Korea (ranked 7), Qatar (ranked 9), and India (ranked 17) were among the top 20 countries for entrepreneurs in 2022.
Entrepreneurial mindset and culture
Developing an entrepreneurial mindset and fostering a culture of entrepreneurship is crucial for business success in emerging economies. Educational institutions and training programs increasingly emphasize entrepreneurship and provide aspiring entrepreneurs with the necessary skills and knowledge.
While calculating the NECI (National Entrepreneurial Context Index) scores for countries to evaluate their conditions for entrepreneurship, entrepreneurial education was considered one of the factors in building the score. Surprisingly, 39 of the 50 economies were rated last on this criteria, highlighting the need to address this low-hanging fruit to achieve better entrepreneurial performance.
Key sectors and trends
Specific sectors hold immense potential for entrepreneurship in emerging markets. The UNECE’s analysis of small and medium enterprises (SMEs) in 17 economies revealed that trade, manufacturing, transportation and storage, construction, professional, scientific, and innovative activities are highly concentrated sectors in the SME space. Trade accounted for a share of 26% of SMEs in Serbia to 64% of SMEs in Armenia in 2022.
Challenges of Entrepreneurship in Emerging Economies and How to Overcome Them
Policy reforms and government initiatives
The lack of policies and government support for entrepreneurship in emerging and developing economies presents significant challenges, including complex regulations, lack of capacity-building programs (to build digital, marketing, and leadership skills), and advisory support.
Governments must enact supportive policies and initiatives, including simplifying regulations, reducing bureaucracy, and providing startup tax incentives. Collaboration between the public and private sectors is also essential for creating an enabling environment that encourages entrepreneurship and facilitates the growth of SMEs.
Governments, corporates, and non-profits can create a supportive entrepreneurial environment for emerging market entrepreneurs to connect with mentors and advisors and build skills through development programs like Malaysia’s Mid-Tier Companies Development Programme (MTCDP). The program successfully helped accelerate export growth by supporting Mid-Tier companies contributing to 40% of the country’s GDP.
Access to finance and infrastructure
Lack of funding options and limited venture capital availability hinder startup growth. According to the International Finance Corporation (IFC), 65 million firms have unmet financial needs of $5.2 million annually in developing countries. Governments and financial institutions must establish mechanisms to provide affordable and accessible financing options, including microfinance, angel investing, and venture capital funds. Startup Chile, an initiative launched by the Chilean government, is an innovation hub aimed at attracting young entrepreneurs to help them accelerate their growth through financial support.
Additionally, improving physical infrastructure, such as transportation systems, communication networks, and reliable power supply, can further facilitate entrepreneurial activities.
International collaboration and expansion
International partnerships, support, and expansion opportunities are challenging for businesses in emerging and developing economies due to power imbalances, limited resources and capacity, complex governance structures, and competing interests and priorities. Initiatives to encourage international knowledge sharing, technology transfer, and partnerships with established businesses and institutions can help entrepreneurs overcome challenges and expand their market reach. International organizations and development agencies can provide capacity-building programs, mentorship, and financial support to foster entrepreneurship and promote sustainable development.
In Conclusion
Entrepreneurs running small and medium businesses in emerging and developing economies are key drivers of economic growth, innovation, and poverty alleviation, significantly impacting their local markets through GDP, exports, and employment growth. While progress has been made in several markets by creating a favorable environment for entrepreneurs, challenges and threats still persist. Creating better policies and infrastructure, improving access to finance and encouraging international collaboration will be key in supporting small businesses and startups reach their potential.
Do you want to help drive entrepreneurship in emerging economies?
Are you a government body, business, or university looking to nurture the entrepreneurs of tomorrow? Futurize can foster collaborations between academic institutions, governments, corporates, and startups to help you build innovation programs in emerging markets to train the next generation of entrepreneurs to develop new ideas that can create a real impact. Get in touch with us today!
