Moscow 2009

1. New Results in Early Entrepreneurship study in Russia, CEE and BRIC L. Mulukova, Е. Murzacheva, J. Filatova Moscow 2009

2. Small business financing: Russia and countries of Central and Eastern Europe, 2006 Ekaterina Murzacheva Moscow 2009

3. Financial strategy of nascent entrepreneurs Descriptive analysis Financial structure Factor analysis Start-up/Own capital Self-financing Informal capital Payback amount Payback time Formal capital Expected returns

4. The structure of financial sources: upper bound, 5% significance level Percentage of early entrepreneurs: demand

5. Factors influencing the early entrepreneurs’ choice of funding structure

6. Empirical evidence (2006) Scale effect:the amount of start-up capital is a dependent variable Efficiency effect: the expected returns on the invested capital is a dependent variable Ordinal scale used: contingency Kendall criterion Test quality: the level of significance is in brackets

7. The influence of GDP per capita on the supply of informal funds in countries-GEM participants (2006)

8. Low expected returns are often combined with prevalence of informal financial sources Type of prevailing financial source determines the amount of start-up capital attracted: scale effect Expected returns are connected with the self-assessment of own abilities But: the results differ among various countries: In case of countries with weak formal financial system informal investments substitute unavailable and/or unstable formal sources (India, China, Russia, Slovenia) In case of countries with sound formal financial system the rate of informal supply is low (Germany, UK, Japan) GDP higher than average is combined with a higher role of informal funding (Iceland, USA, Ireland, Norway) – not a loss of trust in formal credit institutions but high importance of social networks enables access to start-up funding in richer societies Summary

9. Further prospective of the research What is the sense behind excessive informal financing? • Informal support absorbs non-demanded business risk in the economy • The lack of the quality control and as a result credit risk concentration • Evaluation: Basel Committee on banking Supervision – IRB advanced methodology • Results: maximum share of the GDP needed to cover risks caused by entrepreneurial activity in order to make the economy more sustainable to systematic fluctuations % of GDP (USD, PPP)

10. The Phenomenon ofParallel Entrepreneurship in Russia, CEE and BRIC Julia Filatova Moscow 2009

11. Definitions • Two types of entrepreneurs mentioned in the literature: • Serial entrepreneurs - those who go through the successive stages of starting, developing, and closing a venture, and then move on to float a new venture. • Parallel (portfolio) entrepreneurs – those owing /managing more than one company at any one time. • Parallel entrepreneurship characteristics: • Executive decisions decentralization; • Risk diversification; • Umbrella structure.

12. Level of Parallel Entrepreneurship: GEM Data, 2006 Level of parallel entrepreneurship in Russia – 22%.

13. Comparison of parallel entrepreneurs with novice entrepreneurs Differences between parallel entrepreneurs and novice entrepreneurs

14. Business strategies of parallel entrepreneurs • RUSSIA • Business activities: • Wholesale and retail trade(40%), • Personal/consumer service activities (18%), • Transport and communications(13%). • Average number of co-owners: 3 persons. • Average number of employees: 5 workers. • Estimated business growth:1,8times. • Non-innovation business orientation. • Low export potential. • Financial recourses shortage • High integration into entrepreneurial networks. • BRAZIL • Business activities: • Retail trade, hotels & restaurants (21%) • Wholesaletrade(21%), • Manufacturing (19%). • Average number of co-owners:1person. • Average number of employees:2workers. • Estimated business growth:2,6times. • Non-innovation business orientation. • Low export potential. • No financial recourses shortage. • Rather low integration into entrepreneurial networks. ! ! ! • INDIA • Business activities: • Retail trade, hotels & restaurants (51%), • Agriculture, hunting, fishing (11%), • Manufacturing (9%). • Average number of co-owners:1person. • Average number of employees:13workers. • Estimated business growth:1,9times. • Rather innovation business orientation. • Rather low export potential. • Financial recourses shortage • High integration into entrepreneurial networks. • CHINA • Business activities: • Retail trade, hotels & restaurants (43%), • Manufacturing (19%), • Personal/consumer service activities (13%). • Average number of co-owners: 3 persons. • Average number of employees:18workers. • Estimated business growth:4,5times. • Non-innovation business orientation. • Rather low export potential. • No financial recourses shortage. • High integration into entrepreneurial networks.

15. Business strategies of parallel entrepreneurs Network business forming strategies: • Existing business transfer to a new legal platform (50%) • Businesses are coincide by the type of business activity BUT there are distinctions at the particular sphere (9%) Necessity based strategy: administrative barriers and business instability overcoming • New business supplement with the existing one (27%) Strategy of fastening in the market niche • Businesses are not connected with each other (14%) Strategy of maximum risk diversification OR strategy of personal preferences realization

16. Reasons for parallel entrepreneurship Possible reasons for parallel entrepreneurship in Russia: Heterogeneous structure of parallel entrepreneurs Opportunity based factors: • Personal features - strongly expressed «entrepreneurial spirit», • Resource security: sufficient amount of social and human capitals. • Financial benefits (to gain benefits from the start-up status), • Growth-oriented behavior (using of social and economic capital and networks of already existing business to establish a new venture). Necessity based factors: • Administrative barrierspressure, • Business and personal risks diversification strategy in conditions of environmental instability. • Tax minimizing strategy, • Tacit growth strategy in the situation of high risks of vertical growth (pressure of bigger firms dominating • the market, high taxes, etc.). • Possible reasons for parallel entrepreneurship in other countries:

17. Summary The parallel entrepreneurs identified during the APS 2006-2008 in Russia are mainly self-employees and owners of micro-business. Entrepreneurial group with high growth potentialfrom the point of social and human capitals. BUT Entrepreneurial group with low growth potentialfrom the point of structure of financing sources and innovation orientation.

18. Team entrepreneurship in Russia, Eastern Europe and BRIC:some evidences of GEM 2006-2008 Linara Mulukova 2ndyear of MSc Applied Methods of Social Analysis of Markets Programme Moscow 2009

19. Team entrepreneurship Team entrepreneurship - conducting or starting abusiness jointly with partners, sharing ownership with them. Team entrepreneurship is one of the means of risk diversification and fundraising, raising capital of different forms (economic, social, human, etc.). Possible reasons for running business collectively: - entry barriers - absence of support infrastructure - highly developed social networks - cultural and historical prerequisites

20. Team entrepreneurship in Russia Team entrepreneurs vsindividual ones: - younger (means - 33 vs 37, medians – 31 vs 38) - opportunity-based (38% vs 1% - opportunity (have job) and 9% vs 45% - necessity (+opportunity)) - more favourably assess regional conditions for business start-up (44% vs 31%) - less working full time (50% vs 73%), more retired and students - more nascent entrepreneurs (65% vs 28%) - less new and established owners (23% and 19% respectively vs 44% and 34%)

21. Dynamics of team entrepreneurship in Russia

22. Team entrepreneurship in Russia, EE and BRIC countries Eastern Europe Top-5 countries: Iceland (70%) United Arab Emirates (68%) France (66%) Russia (64%) Belgium (60%) Bottom-6 countries: Jamaica (26%) Brazil (27%) Indonesia (30%) Philippines (32%) Japan (34%) Thailand (35%) BRIC

23. Team entrepreneurship in Russia and EE and BRIC countries Russia less think that “successful new business leads to high level of status and respect”; more nascent entrepreneurs, less owners of functioning business Eastern Europe Czech Republic – more business angels; more think that “there are lots of good opportunities for starting a business”; more think that “starting a new business is a good career choice”; less work full time, more retired and students; more nascent, less established entrepreneurs Hungary – more have required knowledge and skills; more nascent, less established

24. Team entrepreneurship in Russia and EE and BRIC countries Russia less think that “successful new business leads to high level of status and respect”; more nascent entrepreneurs, less owners of functioning business BRIC India – more female; more have negative business experience; less have required skills; less work full time, more homemakers; lower income; lower level of education; more not working; more nascent entrepreneurs, less owners of functioning business China – less have negative business experience; less have required skills; less think that “people prefer uniform living standard’; less think that “starting a new business is a good career choice”; less work full time, more work part time or homemakers; higher income; higher level of education; more not working; more nascent, less established entrepreneurs Brazil – more know other entrepreneurs; more think that “there are lots of good opportunities for starting a business”, that “people prefer uniform living standard”; higher income; higher level of education; more nascent, less established entrepreneurs

25. Team entrepreneurship in Russia and EE and BRIC countries Russia 2006: 66,1% matches Nascent entrepreneur “+” Russia 2006-2008: 71,2% matches 2007, 2008 “-” Age “-” Owner of a business (new or established) “-” Eastern Europe 2006: 65,8% matches Age “-” Agrees that “Starting new business is a good career choice” “+” Owner of a business (new or established) “-”

26. Team entrepreneurship in Russia and EE and BRIC countries BRIC with Russia 2006: 75,8% matches Brazil, China, India “-” Age “-” Has knowledge and skills to do a start-up “-” Agrees that “People prefer uniform living standard” “+” Higher levels of education “+” BRIC without Russia 2006: 76,3% matches Age “-” Expects to do a start-up in 3 years “+” Shut down business in past 12 months “-” Has knowledge and skills to do a start-up “-” Higher levels of education “+”

27. Thank you for your kind attention!