Examining how entrepreneurship begins and thrives

Soon after this appears in print, many of the roadside stalls in Ulaanbaatar selling fruits and vegetables will be folding up, many of the tourist camps would see business tapering off, and the media would be reporting statements on what has gone right or wrong with the plan to encourage small and medium enterprises, and on how much space there has been for Mongolian entities in Oyu Tolgoi. So, where will Mongolian entrepreneurship be?

Given certain circumstances every society is able to do things others have done, but I am not so sure all individuals can do everything that some other individual can do. So even if the objective conditions are made easier, will the coming years see a surge in entrepreneurship in Mongolia? I do not talk about business leaders but of smaller folk who organize a new business venture in the hopes of making nothing more than a subsistence profit.

Maybe there is something to be learnt in a new survey, conducted by YouGov and released by the US-based Legatum Institute, of more than 4,000 entrepreneurs in China and India, that sheds light on interesting similarities and differences among enterprising people in the world’s two most populous countries. One of them is Mongolia’s neighbour and, like it or not, largest trade partner, and the other is a country that has more in common with Mongolia than people here are aware of or willing to explore.

There has been a spurt in economic activity in both countries in recent years after decades of stagnation and shackling, both physical and mental, for the vast majority. Much has been written about their comparative economic environments but subjective assessments and projections have not been supported by data on how entrepreneurs in these countries think and what motivates their decisions and actions. This is also a leap Mongolia is poised to take and a study of the survey could benefit policy makers and investors here.

The survey provides a good understanding of what entrepreneurs themselves think about business, government and the economy. It finds that business owners in both nations are optimistic about the economic future.  Some 62% of respondents in China think it will be the world’s gest economic power in 20 years, and 48% in India think India will, while large majorities in both countries – 81% in China and 65% in India – believe they and their fellow citizens are more naturally entrepreneurial than other societies. (It has to be remembered that immigrants from both countries turned out to be astute business people in almost all countries of their diaspora, at a time when their native countries languished.)

Looking beyond the economic optimism, however, it is clear that the styles of entrepreneurship emerging in the two countries are quite different. They start with why people chose to be entrepreneurs.  The main motivation for the overwhelming majority of the Indian respondents was “to be my own boss”, while the most popular response in China was “to earn more money”. Does this suggest that “owning my own company” is more satisfying in India than “building my wealth”, while it is the reverse in China?

Much more tangible and objective are other factors cited as inspiring the decision to start businesses. Almost half of Chinese entrepreneurs thank the State’s efforts to promote and manage enterprise. Compared to just 9% in India, 23% of the Chinese feel what they learnt in school or at the university prompted their decision, underlining the success of the Government’s strategy to use universities to promote entrepreneurship. They also allude to pro-business actions by the government or pro-business messages in the media, State-controlled in China, at three times the rate of their Indian peers.

The picture in India is more relational and organic, which may also mean a failure or absence of new policies to shake tradition. Twenty-one percent cite family expectations as the source of their decision to go into business compared to 9% in China, and 27% of Indians say the example of another entrepreneur egged them on, compared to 18% in China.

Ambition needs capital to propel it. Here, too, the difference is marked. In relational India, 49% of business owners rely on family resources to start their enterprise, compared to only 25% in China, where entrepreneurs are much more dependent on banks, with 49% taking out loans compared to 27% in India. The number of Indian entrepreneurs who said they used conventional financing through debt and investors was double that of their Chinese peers. Are Indian entrepreneurs more careful before they start, more circumspect on how they proceed, more averse to taking risks, because their debts are to family and friends, and a default will shame them more because it hurts people close to them, and not an impersonal and faceless bank? On the other hand, when approached for credit, is a Chinese bank a better judge of the economic viability of a potential business idea than an Indian family?

Asked to list what they thought were important assets for one starting a business, Indian entrepreneurs placed nearly as much value on internal personal qualities, such as creativity and the ability to take risks in the face of adversity, as they did to access to finance. In China, however, the replies gave more importance to access to information and knowledge than being creative. Does this imply that Chinese entrepreneurs believe success depends on external market conditions that can be known and manipulated, whereas their Indian counterparts regard it as the result of their personal ability to adapt to changing conditions?

The survey throws up significant differences in the way entrepreneurs in the two countries see themselves vis-a-vis their policy environment. In India, 81% of business owners say that the most important tool to succeed is jugaad, a comprehensive term signifying the ability to improvise and find ways around prohibitive rules and institutions. In China, 93% of those surveyed say guanxi, the networks and relationships (primarily with the State) necessary to succeed in business, are important to their own success. To me, this suggests that in India enterprising individuals imply they succeed in spite of the State, while in China they believe they succeed by deft utilisation of their connections to it. Corruption is the most familiar face of bureaucracy in both countries, with 63% of Indian and 53% of Chinese entrepreneurs noting it as a serious threat to business.

A study of the report gives me the feeling that entrepreneurship in India is marked by a kind of sustainability that is less evident in China, but this may very well be because I know India much better than I do China. India’s entrepreneurs are more resilient as they cannot succeed in a dysfunctional government and financial environment if they are unable to develop strong individual, independent and experimental ingenuity. They would prosper considerably more and faster if India were to make the path of business smoother and reduced corruption. The first is more likely than the second. I am not sure what will happen in China if State efforts to entice and groom the entrepreneurs its economy needs are to be withdrawn or prove inadequate.

Is there something in all this for policy makers and prospective entrepreneurs in Mongolia, both of which groups face considerable odds. Considerable, but not insurmountable.