CHINA VS. GREECE

International Entrepreneurship Group Assignment

Total early-stage Entrepreneurial Activity (TEA)

China vs. Greece

Table of ContentsIntroduction3Flaws of the TEA Monitoring Process3
Facts and Figures about China and Greece4Argument 1: financial market development4Argument 2: Uncertainty Avoidance6References:7Appendix: Implications for Research9

Introduction

The aim of this paper is to introduce our groups results for the assignment in 3 steps. First, we will make a critical assessment of the TEA as an indicator for entrepreneurship by addressing two major flaws. Second, we will analyze the differences in the TEA for China and Greece. Third, we will discuss one argument related to institutional differences, and one related to the cross-cultural differences of the two countries. Flaws of the TEA Monitoring Process

The total early-stage Entrepreneurial Activity (TEA) includes individuals in the process of starting a business and those running new businesses less than 3 12 years old. The GEM Adult population survey asks the participant first if he is currently trying to start a new business, and afterwards what kind of business this is. The first flaw we want to address is that if someones entrepreneurial activity is illegal he will feel uncomfortable answering this question, and so the truthfulness of the gathered data is questioned. According to D. Coon and John Mitterer (2015) replies to survey questions are not always accurate or truthful. Many people show a distinct courtesy bias (a tendency to give polite or socially desirable answers). In order to strengthen our argument, we list three examples of entrepreneurs who would feel uncomfortable answering those questions. First, it is possible that an entrepreneur wants to avoid paying taxes, especially in countries were taxes are very high, and runs an unregistered business. Second, the entrepreneurial activity might be illegal (for example drug dealing or distillation of illicit alcohol). Third, the entrepreneurial activity is seen as amoral, despite the fact that it is legal (for example Sex or pornographic trade), in the entrepreneurs Country. The second flaw of the TEA monitoring process is that it does not include entrepreneurial activities accomplished by Governments. Government acts as entrepreneur in the provision of technology infrastructure when its involvement is both innovative and characterized by entrepreneurial risk (A. Link; J. Link, 2009). Governments always try to improve our daily lives in innumerable ways, for example by offering better health care services on a lower price, or by improving the air quality of a city. When Government officials achieve those improvements after discovering, enacting, evaluating, and exploiting opportunities in order to create future services, those activities should be counted as entrepreneurial activities, and should be included in the TEA Report.

Facts and Figures about China and Greece

According to the GEM Report of 2014:The Total early-stage Entrepreneurial activity in China is 15.5%, while in Greece it is only 7.9%

China is an efficiency-driven Economy while Greece is an Innovation-driven Economy

The business discontinuation rate is higher than the TEA in Greece, mainly due to the economic crisis.

Perceived opportunities to start a business are dramatically low in Greece, even though perceived capabilities are quite high.

Entrepreneurial employee activity is quite low in Greece.

China shows one of the largest proportions of new product.

Graph 1. Interesting numbers related to the Greek and Chinese TEA ratesArgument 1: financial market development

The development of the financial market determines whether individuals in need of external finance can access the required capital and the amount of premium they have to pay for the financing. The financial market development plays an important role in facilitating entrepreneurship activities (Levine, 1997). Since all new startups need to raise capital first in order to implement their new business, the availability of funds from capital markets lead to differences in entrepreneurship and productivity across different nations (Jayaratne& Strahan, 1996). A sophisticated financial market allows startup without funding to access credit. In countries with higher capital accessibility, individuals tend to have chosen to be entrepreneurs, thus the national have higher entrepreneurial propensity (Ho, 2007).According to our study on both China and Greeces financial market development, we find clear discrepancies between the two countries. In general, we can see that China has an overall rank of 54 while Greece has a rank of 130. The three most obviously arenas, which also have the biggest gap, are Ease of access to loans, Venture capital availability and Financing through local equity market. Therefore, we conclude that China has a more developed financial market than Greece. In the following section, we will study the relationship between the differences in the two countries TEA and the difference of their financial market development.

Figure 1: China financial market development (Source: Global Competitiveness Report 2014-2015)

Figure 2: Greece financial market development (Source: Global Competitiveness Report 2014-2015)Resource dependence theory states that environmental munificence has a positive relationship with firm formation (Castrogiovanni, 1991; Specht, 1993). New startups have several options to fund their business ideas. These funding options will better our understanding regarding the differences between China and Greece. Firstly, debt financing is one of the most common major sources of funding, though entrepreneurs that do not have enough tangible assets or leverage may find it difficult to finance through debt. We believe that one of the reasons that China has a higher TEA rate than Greece is because China has a much higher ease of access to loans.Second, compared to banks that offer debt financing, Venture Capitals (VCs) usually invest in small companies with radical innovations and higher risks. VCs are also more involved in daily business activities, and give operating advice to companies they invest in. As we see in the table, Greeces venture capital availability is ranked much lower than Chinas, meaning Greeces entrepreneurs have much lower chance to obtain funding from venture capital investors.Thirdly, China has a much higher level of financing through local equity market, which also provides the entrepreneurs in China easier access to funding than entrepreneurs in Greece. Local stock market offers companies the opportunity to issue shares to potential investors. The more sophisticated the equity market, the more likely is it that companies can raise capital for further growth.To sum up, we believe that China has a higher TEA rate than Greece, due to the different stage of the financial market development. The favorable environment offers Entrepreneurs in China more funding opportunities from three channels. Argument 2: Uncertainty Avoidance

The paper written by Autio, confirmed the following hypothesis: Uncertainty avoidance at the societal level will be negatively associated with entrepreneurial entry at the individual level. (Autio, 2013) When we look at Hofstedes uncertainty avoidance scores for Greece and China, we observe an extreme differentiation. China scores relatively low on the uncertainty avoidance scale, with only 30 (Hofstede, 2001), whereas Greece has a maximum score of 100 (Hofstede, 2001), on uncertainty avoidance. We first have to explain uncertainty avoidance. Hofstede defines uncertainty avoidance as the degree to which members of that specific society feel discomfort towards having uncertainty. The higher the score, the more uncomfortable they feel. Of course, we can never know what the future will bring, but should we let it happen or try to control it? In this case, entrepreneurs in Greece will try to control it, whereas entrepreneurs in China will just let it happen and see what follows.Fear of FailureQuoting the GEM report, Fear of failure can be a strong inhibitor for seizing opportunities and transforming entrepreneurial intentions into entrepreneurial activity. (GEM Report, 2014)Individuals aged between 18 and 64 which are not included in any form of entrepreneurial activity because they fear failure, are shown by the fear of failure rate. The GEM report measures these rates for Greece and China, and when we compare these scores we can see an extreme discrepancy. China scored 39.5 (GEM Report, 2014) in 2014 on the fear of failure rate, whereas Greece had a score of 61.6(GEM Report, 2014) on the same rate. This implies that for Greek people, 61.6% of the population aged 18-64, which are not engaged in entrepreneurial activity, will not engage in any entrepreneurial activity because of the fear that they will fail. Compared with China this is a vast difference of more than 20%. (GEM Report, 2014)Combining this with Autios research, we argue that uncertainty avoidance is negatively related to entrepreneurial activity. And a study by Mueller (2001), which found support for their hypothesis that an entrepreneurial orientation is more likely in low uncertainty avoidance cultures, than in high uncertainty avoidance cultures. We can conclude that one of the explanations for the differences in the TEA between China and Greece is the extreme difference in uncertainty avoidance, together with the fear of failure, which is explained in the GEM document. Conclusion
In conclusion, our research revealed two significant differences in China and Greece, which both have an enormous impact on the TEA rates. The first difference is the Financial Market Development, which is affecting negatively the entrepreneurial activity in Greece. The second difference is the Uncertainty avoidance and the Fear of failure, which are both significantly higher in Greece than in China, leading to less entrepreneurial activity in Greece. To conclude, the low competitiveness of the Greek economy, serves as a barrier for entrepreneurial activity.References:

Robert Smith and Gerard McElwee (2013). The embeddedness of illegal entrepreneurship in a closed ethnic community. Int. J. Business and Globalization, Vol. 11, No. 1, 2013

Oviatt, B. M.; Mcdougall, P . P . (2005). Defining International Entrepreneurship and Modeling the Speed of Internationalization. Entrepreneurship Theory & Practice, n. 29, pp. 537-553.

Levine, R. (1997). Financial development and economic growth: views and agenda. Journal of economic literature, 688-726.

Jayaratne, J., & Strahan, P. E. (1996). The finance-growth nexus: Evidence from bank branch deregulation. The Quarterly Journal of Economics, 639-670.

Ho, Y. P., & Wong, P. K. (2007). Financing, regulatory costs and entrepreneurial propensity. Small Business Economics, 28(2-3), 187-204.

Castrogiovanni, G. J. (1991). Environmental Munihcence; A Theoretical Assessment. Academy of Management Review, 16(3), 542-565.

Specht, P. H. (1993). Munificence and carrying capacity of the environment and organization formation. Entrepreneurship: Theory and Practice, 17(2), 77.

World economic forum. (2014). Global Competitiveness Report 2014-2015. Available: http://reports.weforum.org/global-competitiveness-report-2014-2015/economies/#economy=CHN. Last accessed 10.03.2015.

World economic forum. (2014). Global Competitiveness Report 2014-2015. Available: http://reports.weforum.org/global-competitiveness-report-2014-2015/economies/#economy=GRC. Last accessed 10.03.2015.

Autio E, Pathack S and Wennberg K. (2013). Consequences of cultural practices for entrepreneurial behaviors. Journal of International Business Studies. 44 (1), p334362.

Karagiannis, N and Kondeas, A. (2012). The Greek financial crisis and a developmental path to recovery. real world economics review. 60 (1), p54-73.

Mueller, A. (2001). Culture and entrepeneurial potential: A nine country study of locus of control and innovativeness. Journal of Business Venturing. 16 (1), p51-75.

Singer S,Amors J,Arreola D. and Global Entrepreneurship Research Association (GERA). (2015). Global Entrepreunership Monitor 2014 Global Report. Available: http://www.gemconsortium.org/docs/download/3616. Last accessed 10.03.2015.

Hofstede G.. (1984). NATIONAL CULTURE DIMENSIONS. Available: http://geert-hofstede.com/dimensions.html. Last accessed 10.03.2015.Hofstede G. (2010). Cultures and Organizations. Available: http://geert-hofstede.com/national culture.html. Last accessed 19.03.2015Mitchell Weiss. (2014). Government Entrepreneur is Not an Oxymoron. Available: https://hbr.org/2014/03/government-entrepreneur-is-not-an-oxymoron. Last accessed 11.03.2015.

Albert N. Link, Jamie R. Link (2009). Government as Entrepreneur. Oxford: Oxford University Press. Page: 4.Dennis Coon, John Mitterer (2015). Introduction to Psychology: Gateways to Mind and Behavior. .: Cengage Learning. Page: 45.

Appendix: Implications for Research

Future research should focus on why there is such a high differentiation in uncertainty avoidance and fear of failure between those two countries. Two more questions that can be researched in the future are related to the economic crisis in Greece. How much is the economic crisis in Greece affecting the entrepreneurial activity? Is the economic crisis affecting only the financial development pillar or also cultural values?

Furthermore, We believe exploring the influence of financial market development in more detail will provide more practical implications for economic planning. Topics like monetary and fiscal policy, and Central Bankss role in entrepreneurship activities, are particularly interesting for policy setting.

CHINA VS. GREECE

Word Count: 1463

CHINA VS. GREECE