Why does entrepreneurship policy matter? And how can policies make or break the entrepreneurial spirit? In a two-part feature, Profs. Tales Andreassi and Éder Danilo Bezerra of FGV-EAESP and their fellow co-researchers explore the focus of public entrepreneurship policies in Brazil and highlight their crucial role in generating the conditions that encourage business creation.
By CoBS Editor Megha Sureshkar. Related research: Entrepreneurship policy in Brazil: Its focus and gaps, International Journal of Entrepreneurship and Small Business 34(2):183
“Whatever you can do or dream you can do, begin it. Boldness has genius, power and magic in it!” – powerful words by German author Johann Wolfgang von Goethe that capture the essence, energy and magic of the entrepreneur.
Entrepreneurs occupy a central position in society. They serve as the spark plug in the economy’s engine, generating economic value by identifying new business opportunities or expanding existing businesses, and launching products, processes, or services that could be exploited economically. As such, countries use entrepreneurship as a strategy to improve their economic performance and establish policies which can effectively promote and drive enterprise creation.
One and the same
In the public sector, the concept of public policies takes on the same meaning as the concept of strategies in the private sector, i.e., plans or guides for future action and processes. Public policies can be seen as the process of implementing government projects through programmes and actions, involving different organs and agents, in both government and society. They play a decisive role in the development of entrepreneurial activity and the consequent creation of jobs, economic growth, regional development and innovation.
Knowing the public entrepreneurship policies designed and put into practice means knowing the direction a country is taking in terms of entrepreneurship. On that basis, Prof. Andreassi and his colleagues work on the entrepreneurial canvas of Brazil using a few gentle strokes of the Lundström and Stevenson model to paint a picture of public entrepreneurship policies in the country and unravel which fields are benefitted or are neglected by such policies.
The Brazilian canvas
The entrepreneurship environment in Brazil is not favourable when compared to that of other countries. According to the World Bank’s Doing Business, Brazil is one of the countries with the highest levels of difficulty when it comes to opening a business. In the 2015 classification for Starting a Business, Brazil ranks 167th of the list of 189 economies analysed by the World Bank. A second study, the Global Entrepreneurship and Development Index, places Brazil in 100th position in an evaluation of the set of factors which facilitate the development of entrepreneurship in a country. So, what is the reason for this unfriendly business environment?
This question calls for an exploration of the country’s public entrepreneurship policies by classifying them according to the aforementioned Lundström and Stevenson model, which presents eight categories – promotion of entrepreneurship; entrepreneurship education; reduction of entry/exit barriers; start-up financing; start-up support, target group measures; infrastructure; and technology and innovation. And the aim is to use the model to make recommendations for government action to build a fertile environment for new businesses. Let’s begin by taking a closer look at each category.
Promotion of entrepreneurship
Creating an environment which enhances entrepreneurship, with a view to make it more visible in the eyes of society and promoting it, encourages more people to opt for entrepreneurship and as a result, set up new businesses.
The objectives which allow public entrepreneurship policies to be classified in this dimension include: improving the visibility of entrepreneurship in the eyes of society; increasing awareness of entrepreneurship; presenting success cases to show situations of achievement in entrepreneurship; stimulating attitudes favourable to entrepreneurship and its role in society; generating interest in exploring entrepreneurship as a career option; and increasing support in society for entrepreneurship.
Entrepreneurship can be embedded in the education system by undertaking certain actions: helping students develop entrepreneurial competencies; introducing the concept of entrepreneurship into the school curriculum at all levels so that it can be considered a career option from the outset; and engaging teachers as partners in entrepreneurship by encouraging them to work with their students to shape up the necessary spirit and skills.
These measures would lead to entrepreneurship being seen as common practice in society from basic education onwards. Entrepreneurship would, as a consequence, gain more prestige and help in the formation of possible future go-getters. From early on, students would have the social support, develop invaluable technical and managerial business skills, inculcate entrepreneurial characteristics such as creativity, business vision, leadership and self-confidence and understand the various challenges to be faced in the ultra-competitive business world.
In addition, entrepreneurship education should go beyond traditional approaches and introduce initiatives such as entrepreneurship centres, entrepreneurship internships, consultancy and research.
Reduction of entry/exit barriers
Entry/exit barriers exert a strong influence on micro and small enterprises and on entrepreneurs, who cannot always afford to pay high taxation rates. Entrepreneurs also face strong pressure from the market to compete and do not have sufficient funds to put certain market actions into practice or, in the long term, handle the legal and fiscal aspects which impact their businesses.
The objectives for the categorization of public entrepreneurship policies in this dimension include: facilitating entry criteria for companies so as to increase the number of new enterprises in the market; increasing opportunities for new enterprises; reducing the stigma of exiting and failure in order to encourage entrepreneurs to have faith in their businesses; reducing the cost of labour and increasing flexibility; reducing the administrative workload involved in dealing with the new rules for existing small businesses; reducing taxation rates; facilitating transfer of ownership for family businesses; promoting investment in research and development; stimulating informal investments and risk capital; and simplifying tax returns.
Many firms do not innovate because of the entry barriers which hinder innovative entrepreneurship. These make it difficult for enterprises to remain operational and consequently entrepreneurs do not invest in the business. As such, policies should encourage enterprises to enter the market by lowering these barriers.
Many countries, such as Brazil, continue trying to reduce or eliminate obstacles for entrepreneurs. These include bureaucratic procedures and transparency issues, such as a lack of accurate information and time-consuming procedures. Inefficiency often results in delays and unnecessary financial costs for the opening of new businesses. Measures to promote start-ups include reducing the number of licences, processes and administrative fees; introducing fast-track mechanisms to cater to specific demands; and introducing electronic procedures to register enterprises.
Finance policies deal with the availability of financial resources to boost entrepreneurship. The fact that small enterprises have fewer resources than large companies affects their competitive power and, consequently, their performance in the market. The goals of the finance category include: improving access to finance for all groups of entrepreneurs at all stages of business development, especially the early stages; reducing risks and loan costs for small enterprises; raising investments from the private sector; increasing the supply of risk capital; and finding angel investors.
The availability of credit plays a major role in the formation of new businesses. One of the main challenges for small and medium-sized entrepreneurs in countries such as Brazil is the cost of financing which is still expensive. There are many bureaucratic barriers to accessing funds and banks can be insensitive to small businesses. Difficult access to credit is one of the reasons for the demise of micro and small enterprises, as entrepreneurs who are not always able to obtain sufficient funding have to resort to using their own capital and are incapable of expanding their businesses or taking advantage of a business opportunity. The solution to this is the creation of specific credit facilities.
Support for start-up businesses deal with information, training and consultancy to provide entrepreneurs with greater skills to conduct their activities. This dimension is defined by the goals of reducing information asymmetries; improving the scope of information and counselling services at each stage of development of the enterprise; improving the quality of services for newcomers; and meeting the needs of people at different stages of development.
Entrepreneurial activity can face many initial problems such as a lack of customers, legitimacy, relationships, and a turbulent economic environment. More innovative countries have more dynamic activity because they perceive the significance of understanding the entrepreneurial context of the country and the need to support both new and established companies.
This aspect is paramount because it specifically addresses the internal actions of entrepreneurs in the management and general operations of their new businesses. Such firms generally experience strategic and organisational problems – no business plan, lack of innovation, difficulty in finding and maintaining customers, keen competition, entrepreneurs with low levels of schooling and few managerial skills – that directly affect the business and influence their chances of survival in the market.
The entrepreneur’s knowledge of the enterprise and the market is decisive for organisational success and is a necessary skill if the enterprise is to remain operational. In this sense, policies to support entrepreneurs could help them institute measures to guarantee the development of their businesses.
Target group measures
The aim of policies to support target groups is to use entrepreneurship as a means to bring about the social and economic development of the less privileged or priority groups in society. Support for female entrepreneurs, for instance, is included in this category.
The objectives for this aspect take into account: increasing the business of groups that are under-represented; reflecting the different self-employed social groups; introducing new people to the labour market by providing them with opportunities to join; helping reduce unemployment rates; enabling certain groups to gain access to finance and training at the early stages of their venture; broadening the scope of government action in support of entrepreneurship; and ensuring that entrepreneurship is accessible to all.
Public entrepreneurship policies in certain countries indicate “affirmative” policies. Their actions have the power to alter realities and provide opportunities for social belonging and improved quality of life for the less privileged and are a basis for reducing inequality and social problems, such as poverty, prejudice and exclusion. Such policies also provide these groups with a chance to enter the entrepreneurial scene.
Depending on the main challenges of each country, special entrepreneurship programmes, such as those that improve the employability of the young, create economic opportunities for women and overcome ethical divisions, could also play a vital role.
The infrastructure category involves policies for designing infrastructure to aid and leverage new businesses. It includes building projects or the provision of services involving roads, telecommunications, energy, safety, qualified labour, renovations and extension. Each emerging venture influences the economic dynamic, so the infrastructure underlying a business should be thought through carefully and should create the basic conditions to make the enterprise viable.
Adequate infrastructure makes it possible for enterprises to perform better by providing entrepreneurs with a more attractive environment which is suitable for the development of new businesses.
Technology and innovation
The technology and innovation category has to do with policies to exploit innovation and emerging technologies as a means of developing entrepreneurial ventures. The goals concerning this dimension include: making innovation a vector for local development; providing technological scholarship; extending government investments in innovation; providing enterprises with greater security in terms of protection of intellectual property; providing means for viable innovative post-graduate and outreach projects; and appreciating businesses related to the sustainable use of biodiversity.
These policies provide enterprises with greater accommodating and proactive qualities which, when seeking new or improved processes, products and services, could ensure their stability in the market or embeddedness in the business environment with a certain degree of differentiation. Innovation is a vital driving force for development and social advance, as it is a major channel of government action.
Indeed, many businesses do not present innovation with any significant economic impact. To improve their potential for development and provide positive results for society, businesses should be encouraged to innovate and expand their R&D capacity.
Part 2 of this feature will be posted on Tuesday 15th December.
Read Part 2 of this feature on entrepreneurship in Brazil
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- Study a Professional Master’s in International Management (MPGI) at FGV-EAESP
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