Business under crisis: to start or to discontinue? (The case of Russia)

Business under crisis: to start or to discontinue? (The case of Russia)

Alexander Chepurenko, Prof. Dr. [email protected], Tatiana Alimova, PhD, Ass. Prof., Anastasia Chenina, MA student

ISBE 2010, London, November, 3-4 2

Structure of presentation

Crisis impact on Russian economy and SME Objectives Data and methods Hypotheses Key findings Political implications Future research prospects


GDP and unemployment data compared (Rosstat) GDP 2008 2009 1st quarter 2010

as % to 1st quarter 2009

Russia 5,6 -7,9 2,9

UK 0,5 -4,9 -0,3

USA 0,4 -2,4 2,5

Unemployment 2008 2009 March2010

Russia 6,3 8,4 8,6

UK 5,6 7,6 8,0

USA 5,8 9,3 9,7

SME development under crisis (Rosstat)


Small enterprises, total, Russian Federation2008 2009 2010

January-March 287027 227560 219582

January-June 286177 227706 219607

January-September 281703 227742

January-December 282651 227529

Micro-enterprises, total, as to the end of the year

2008 2009

Total 1052319 1374661


Some comments GDP decrease deeper than in most developed market economies,

whilst unemployment dynamics – rather moderate: less incentives to start up (necessity driven activity)

The economic crisis in Russia began only in autumn 2008 - later than in Western countries, therefore

Significant SMEs number decrease not in 2008, but in 2009 (- 19,5%); parallel to increasing number of micro-firms (= individual entrepreneurs) + 30 %

The proportion of small to micro-firms changed from 26.5% to 16.6%, while the total number of small and micro businesses increased from 1.334970 to 1.602190, or + 20.0 %

Who are the new venture’s owners: necessity driven nascent entrepreneurs + owners/managers of former juridical firms seeking for tax and accounting preferences available for micro’s (??)


Objectives of the paper

The impact of economic crisis (2008-2009) on population’s entrepreneurial activity & entrepreneurs’ decisions to start up / continue / quit a business?

Focus on: (1) business entry and exit dynamics of entrepreneurs, (2) behaviour of adults with ‘entrepreneurial past’

among non-entrepreneurs (3) future plans of those who quit the business under

the crisis


Data and methodology GEM methodology (Reynolds, P. et al., 2005. Global Entrepreneurship Monitor:

Data Collection Design and Implementation 1998-2003. Small Business Economics, 24, pp. 205-231) differentiating

- Potential entrepreneurs (willing to establish a new venture)- Nascent entrepreneurs (making practical steps to realize it)- Baby (new) business owners ( < 3 < 42 months)- Established business owners (< 42 months)- Motivation (opportunity / necessity / mixed)- Discontinued a business during last 12 months, among them: Entrepreneurs who discontinued (closed/quit) a business temporary - persons,

who during last 12 months closed a business, but not at all any the entrepreneurial activity;

Persons who exited of a business forever (escaped) - respondents, who during last 12 months closed a business and escaped from any entrepreneurial activity during last 12 months.

GEM APS data for Russia (2006-2009) N of respondents = 1850 -1900 annually


GEM based entrepreneurship dynamic indicators for Russia, 2006-2009

Index Measured in 2006 2007 2008 2009

TEA % 4,9 2,7 3,5 3,9

Nascent Entrepreneurs % 3,5 1,3 1,7 1,8

Baby Business Owners % 1,4 1,3 1,8 2,1

Establ. Business Owners % 1,2 1,4 1 2,1

TEA_OPP % 3,4 1,9 2,5 2,6

TEA_NEC % 1,4 0,5 0,7 1,1

Business Discont. Rate % 1,1 1,0 1,0 2,0


Hypotheses on the impact of economic crisis on entrepreneurial activity The assessments of the economic slowdown should be most negative by

baby business owners because of still scarce own liquidity and lack of access to formal loans etc. (H1).

The share of necessity driven becomes higher than the share of opportunity driven potential entrepreneurs as a result of tensions on labour market (H2).

Economic reasons to quit – dominating among those who exit of a business forever during the crisis, but it will hardly have a strong impact on those discontinuing a business only temporary, as the latter represent (serial & portfolio) entrepreneurs who economically looks better (H3).

Firms of those who discontinue only temporary survive more often than firms of ex-entrepreneurs who escape forever (H4).

The difference between entries and exits may become negative (H5). Men and persons with higher education are more often considering a

possible entrepreneurial comeback, while women and respondents with lower level of education tend to escape from business forever (H6).

Negative perception of opportunities to do a business and low self-efficacy would be the most important factors preventing a significant part of non-entrepreneurs with ‘entrepreneurial past’ to start up anew (H7).


Key findings

H1 seems to be neither supported nor rejected: no signs of more oppressive impact on baby business owners.

H2 did not receive support by the data; however, the shares of opportunity vs. necessity driven among potential entrepreneurs in 2009 became nearly equal.

H3 supported: those who decided to close and exit of any business forever were been more strongly affected by the economic slowdown than (serial) entrepreneurs discontinuing temporary

H4 supported: firms of those who discontinue only temporary survive more often than firms of ex-entrepreneurs who escape forever

H5 supported: ETP index became < 1 H6 supported: a correlation between education and current status of

persons with entrepreneurial experience in the past: the higher the education status, the more often respondents don’t escape from entrepreneurial activity forever (statistical significance is high); however, only a weak negative correlation (ra = - 0,12) between gender and the decision about future entrepreneurial engagement

H7 supported: negative perception of business opportunities and low self-efficacy - most important factors preventing a significant part of non-entrepreneurs with ‘entrepreneurial past’ to start up anew


Political implications (1) to diminish the discontinuation rate of serial

entrepreneurs, easier access to guarantees and co-financing from State development institutes needed.

(2) the crisis played to some kind a positive role pushing less successful entrepreneurs to exit forever. Then, the State should use a more selective policy promoting only those who are able to compete under much harder circumstances.

(3) no reasons for special support of baby businesses among early entrepreneurship.

(4) no evidence of dramatic increase of necessity driven entrepreneurship – hence, a special emphasis on promoting unemployed people to establish a new venture - only in special areas (so called mono-cities etc).


Future research prospects Accumulation of data and cross-national

comparison of crisis impact on entrepreneurship and entrepreneurial potential

Post-crisis period: how persistent are the changes in the structure of entrepreneurial potential and early entrepreneurship occurred during the economic slowdown?


Thank you for your attention!

Спасибо!

For more detail about the GEM: www.gemsonsortium.org

Some findings of the Russian GEM team: http://www.hse.ru/org/hse/soc/gem/

Business under crisis: to start or to discontinue? (The case of Russia)

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