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

1. Business under crisis: to start or to discontinue? (The case of Russia) Alexander Chepurenko, Prof. Dr. achepurenko@hse.ru, Tatiana Alimova, PhD, Ass. Prof., Anastasia Chenina, MA student

2. Structure of presentation • Crisis impact on Russian economy and SME • Objectives • Data and methods • Hypotheses • Key findings • Political implications • Future research prospects ISBE 2010, London, November, 3-4

3. GDP and unemployment data compared (Rosstat) ISBE 2010, London, November, 3-4

4. SME development under crisis (Rosstat) ISBE 2010, London, November, 3-4

5. 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 (??) ISBE 2010, London, November, 3-4

6. 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 ISBE 2010, London, November, 3-4

7. 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 ISBE 2010, London, November, 3-4

8. GEM based entrepreneurship dynamic indicators for Russia, 2006-2009 ISBE 2010, London, November, 3-4

9. 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 foreverduring 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). ISBE 2010, London, November, 3-4

10. 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 foreverwere 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 ISBE 2010, London, November, 3-4

11. 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). ISBE 2010, London, November, 3-4

12. 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? ISBE 2010, London, November, 3-4

13. 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/ ISBE 2010, London, November, 3-4