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Hidden entrepreneurs make up for Europe’s low start-up rate

By Jonathan Levie - Posted on 12 January 2017

A report co-written by the World Economic Forum and Global Entrepreneurship Monitor (GEM) reveals there is a wealth of hidden ‘intrapreneurs’ across Europe. GEM co-author Professor Jonathan Levie takes a look at some of the detail.

European economies have a low start-up rate and are not entrepreneurial. At least that’s the story we often hear which, on the face of it, is supported by past research: compared to all other regions in the world, European economies are behind when it comes to the proportion of people starting businesses, using GEM’s main measure of Total Early-stage Entrepreneurial Activity, or TEA.

In this joint study we found a hidden body of entrepreneurs operating within the corporate world across the continent – ‘intrapreneurs’.

Intrapreneurship is where workers come up with new ideas and innovate within organisations rather than starting their own businesses. GEM started measuring how many intrapreneurs there are in different countries around the world in 2011, and using this measure of Entrepreneurial Employee Activity (EEA) we have found that in some parts of Europe – primarily the north and west - entrepreneurs are not in short supply, it’s just that many of them choose to innovate inside larger organisations instead of becoming business owners.

This is part of the reason economies like Denmark, Sweden and the UK maintain such vibrant, cutting-edge economies despite lower levels of business starts than the US, Canada or Australia. A lot of the innovation and vitality that workers in the north and west of Europe are injecting into the global economy come from entrepreneurs within organisations, but these people have been hidden from view up until recently. Contrary to previous belief, based on looking at start-up rates, entrepreneurship – in the form of EEA – is thriving in parts of Europe.

Most of the eastern European and Baltic economies experience the opposite effect: while they have high rates of business formation, they have generally lower rates of EEA. At the bottom of the EEA rankings are the southern European economies that – with the exception of Portugal – do not report high rates of entrepreneurship in any form.

These ‘entrepreneurs within’ produce new products and services, and are important drivers of economic innovation. What’s more, the new projects they are working on can have greater potential for job creation than those of independent entrepreneurs.

However, EEA does not make Europe the world’s most entrepreneurial region. Most other regions of the world have higher rates of business start-up. Still, EEA helps some European economies narrow the gap with other regions and, because EEA tends to be of higher quality in terms of growth potential, helps explain why Europe remains highly competitive despite low rates of business starts.

Given this complex picture, what should policy-makers do?

First, they need to understand not just the effects of regulations on both types of entrepreneurial activity, but also the effects of national and local culture on the “occupational choice” of entrepreneurial employees – to stay and innovate within or to start a new business. This will help them to set policy that does not hinder either independent entrepreneurship or intrapreneurship, but helps entrepreneurs to decide which path is most likely to result in a successful innovative project. Educational activities (programmes, learning/teaching methods) should be related to the development of entrepreneurial competencies and initiative and not restricted to the technical aspects of starting a new business.

Policymakers should not assume that TEA and EEA compete with each other. The presence of both offers opportunities for “collaborative innovation” - a young firm and an established firm might share complementary resources and combine efforts to support innovative ideas, for example. Policy-makers should actively encourage collaborative innovation and develop policies that create incentives wherever possible.

Policy-makers need to assess the strengths and weaknesses of their own economies when designing entrepreneurship policies, and take into account unique features, rather than attempt to replicate the success of other countries.

Possible policy interventions could include:

• Acknowledging the importance of both modes of entrepreneurial activity and understanding their dependence on the quality of the institutional and regulatory context of a country, and how these might be a reflection of deep-seated cultural norms, some of which might unintentionally favour one form of entrepreneurship over another;
• Focusing on improving competitiveness in an economy to increase opportunities for both forms of entrepreneurial activity;
• Helping established firms become more innovative and open to entrepreneurial employee activity by incentivising company R&D and making university-industry collaboration easier;
• Developing entrepreneurial cultures by intensifying the inclusion of educational activities related to the development of entrepreneurial competencies and initiative at all educational levels, including executive education for senior management in established organisations on how to encourage EEA.

At Strathclyde Business School, we are playing our part in this. For example, every one of our MBA students studies Entrepreneurial Management and Leadership as a core course. The course is not about start-ups – we leave that for our popular New Ventures elective. Instead, it is about how to encourage entrepreneurship within established organisations. We do the same for established entrepreneurs in our award-winning Growth Advantage Programme, helping them to make innovative changes within their business and release the entrepreneurial talent of their employees. For both MBA students and entrepreneurs, the power of intrapreneurship can be a revelation.

To read the full report, please click here

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