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Growing Beyond
Entrepreneurs speak outA call to action for G20 governments
The Nice Côte d'Azur 2011 Entrepreneurship Barometer Produced for the G20 Young Entrepreneur Summit, October 2011
ViewpointRodrigo Alonso Herrera AspraCEO and chairman, Genomma Lab Internacional, Mexico
Rodrigo Alonso Herrera Aspra founded Genomma Lab Internacional 15 years ago. It is now one of the
largest and fastest-growing international pharmaceuticaland personal-care products companies in Mexico.
“Mexico does not have an entrepreneur-friendly culture. Despite the fact that entrepreneurs create 9out of 10 jobs, people do not trust us — this attitude needs to change.This does not ease the process of starting up a business.
In addition, there wasn’t, and still isn’t, a strong entrepreneur network in Mexico. I was invited to Richard Branson’s island recently, which was a very inspiring moment for me. We don’t look up to people like him in Mexico. I think successful entrepreneurs have a responsibility to help young entrepreneurs. I would have liked that kind of help when I was just starting out.
I would also like to see clearer tax rules and less bureaucracy in Mexico. There are too many regulatory barriers and so many different regulatory issues — I would rather hire engineers and chemists than lawyers. For example, it takes three years to get approval for pharmaceutical manufacture in Mexico, when it takes two weeks in the US. These difficulties hold us back from growing and creating more jobs.”
TendencyWeighted score:
higher quartileWeighted score: lower quartile
++–––
+
Dete
riorated Improved
The perception barometerThis study focuses on the entrepreneurship environment of
entrepreneurship culture; education and training; access to funding; regulation and taxation; and coordinated support.
Through these enablers, we explore the climate for entrepreneurs in the G20 countries and the likely direction things will take.
Quantitative economic indicatorsThe opinions of entrepreneurs on the progress and impact of
Our perception barometer sums up progress as evaluated by more
score ranges.
The analysis of these indicators and opinions also highlights how indicators and opinions aentrepreneurs’ perceptions may differ from the latest economic ons may differ from
ideas or lack of information. Bureaucratic red tape can also present challenges when it comes to accessing sources of funding.
These gaps in perception raise a call for actions to governments to
1Entrepreneurs speak out The Nice Côte d'Azur 2011 Entrepreneurship Barometer | Mexico digest
StrengthsSetting up a business in Mexico is easier than in the average of both the G20’s rapid growth market and the group as a whole The Government’s commitment to foster business incubators
WeaknessesWith low investment in R&D and few scientists, the country is ill prepared to compete in the knowledge economy
and unattractive option
OpportunitiesWith an increase in labor costs in China, Mexico has regained some of its lost attraction as a location from which to supply manufactured goods to the US market due to its geographical proximity and the presence of NAFTA The Government’s commitment to programs that foster entrepreneurship
ThreatsGiven the extent of Mexican dependency on the US, prolonged economic woes there would affect the country and its SMEs heavily
The Nice Côte d'Azur 2011 Entrepreneurship Barometer by Ernst & Young
the entrepreneurship environment
Mexico Huge markets to win overWith a sizable domestic market of over 100 million, and wide access to the US thanks to the North American Free Trade
advantages. Moreover, they perceive their country’s culture as promoting entrepreneurship, and face globally less regulatory red tape to start a business than in the average G20 country — let alone in the average rapid growth market of the group.
The number of new businesses created rose by 27% between 2005 and 2008, compared with increases of 11.8% in the G20 as a whole and of 5.3% in the average of its rapid growth markets in the group. A total of 78% of the entrepreneurs surveyed believe that Mexico has a culture that promotes entrepreneurship.
However, the reality is mixed. Access to credit is largely a challenge for small and medium enterprises (SMEs), and excessive exposure to the US economy may threaten Mexican companies if the US endures a long period of slow growth. Furthermore, a low number of students in tertiary educationand poor indicators in the areas of science and research and development (R&D) leave the country in a precarious positionin the global knowledge economy.
New business registeredMexico compared to G20 and mature market average
World Bank. Data not available for US, China and Saudi Arabia
0
100,000
200,000
2005 2006 2007 2008 2009
Mexico Rapid growth market average G20 average
2 Entrepreneurs speak out The Nice Côte d'Azur 2011 Entrepreneurship Barometer | Mexico digest
In 2007, investment in R&D clearly was lacking. The shareof GDP (0.4%) spent on R&D was less than one-third ofthe proportion spent by the average G20 country (1.5%).
Entrepreneurship culture
Investments in R&D need to grow
The level of expenditure in research and development stagnated in Mexico during the 2005–07 period, while the group contribution continued to rise slightly(by 0.1 percentage point). In addition,
from 2005 to 2009, to 14,281, while in
On top of having a stagnant R&D expenditure as a share of GDP, between 2005 and 2007, Mexico experienced a
researchers undertaking R&D, falling by
That very poorly compares with the average of G20 countries for which data is available
and technical journal articles published in
but much lower than the average rise recorded by rapid growth markets in the
Mexico still lags behind the average of both the G20 and the group’s developing countries by a very large margin.
surveyed believe that the country hasa culture that encourages entrepreneurship. This could be further improved, according to them, by improving the communication around the success stories of entrepreneurs, and by promoting the career opportunities that entrepreneurship offers. A total of
to promote the success stories of young
think that a similar phenomenon also
that the positive image of entrepreneursin the media has had a high impact onthe perception of entrepreneurship inthe country in recent years.
Do you think that the culture of your country encourages entrepreneurship?
The Nice Côte d'Azur 2011 Entrepreneurship Barometer by Ernst & Young
1. G20 average based on the 18 countries for which data is available for 20072. G20 average based on the 13 countries for which data is available for 2007
Agree
78%
Disagree
22%
Mature markets: 72%Rapid-growth markets: 80%
54% of entrepreneurs think investors view business failure as a learning opportunity78%
of our respondents believe that the country’s culture promotes entrepreneurship
Mexico G20 average
Innovative environment 2007 change 2005–07
2007 change 2005–07
R&D expenditure (%GDP) 2005–071 0.4 0 p.p. 1.5 +0.14 p.p.
(number of publications) 4,223 +7.4% 31,376 +6%
Researchers in R&D (per million of population)2
2005-07 353 -15.4% 2,340 +0.5%
How do you think business failure is perceived in your country by the business environment?
The Nice Côte d'Azur 2011 Entrepreneurship Barometer by Ernst & Young
0%
20%
30%
40%
50%
It has no impact on future business projects
It's a learning opportunity
It's a barrier for future business projects
It's a career failure
It's a lack of appropriate skills
Rapid-growth markets
Mexico
10%
p.p.: percentage points
3Entrepreneurs speak out The Nice Côte d'Azur 2011 Entrepreneurship Barometer | Mexico digest
Education and training
Eighty-four percent of our panel say that the quality of dedicated entrepreneurship chairs in universities and business schools, and of entrepreneurship conferences and seminars, has improved recently. Others
coaching programs for entrepreneurs
Mexico’s spending on education as a share of GDP equals that of the G20 as a whole
a downward trend, falling by 0.2 percentage points in the country between 2005 and
in the group and 0.7 percentage points on average in developing countries. Unless that trend is reversed, Mexico will run the risk of falling behind its peers.
Indeed, despite above-G20 average increases in the means of both gross secondary and tertiary school enrollment rates, the country is still behind the group’s mean in this indicator, which measures the proportion of the total enrollment (regardless of age) to people of the age group that should be receiving that levelof education. The country lags most notably in tertiary education, in which it has a gross
for its developing countries.
the development of training offered in the country.
Mexico G20 average
2008 change 2005–08
2008 change 2005–08
Public spending on education, total (% of GDP) 4.8 -0.2 p.p. 4.8 +0.3 p.p.
School enrollment, secondary (% gross) 89.9 +6.5 p.p 95.9 +1.6 p.p
School enrollment, tertiary (% gross) 27.2 +2.5 p.p. 53.5 +1 p.p.
Tertiary-type A and advanced research programs (number of graduates)3 39,6281 +11% n.a. 8%
3. G20 average based on 11 countries for which data is available
Do you think that students need to follow specific training to become entrepreneurs?
The Nice Côte d'Azur 2011 Entrepreneurship Barometer by Ernst & Young
Yes
88%
No
12%
Mature markets: 59%Rapid-growth markets: 80%
88%of our respondents feel that students
entrepreneurs
n.a : Data not availablep.p.: percentage points
4 Entrepreneurs speak out The Nice Côte d'Azur 2011 Entrepreneurship Barometer | Mexico digest
Sixty percent of the young Mexican entrepreneurs surveyed found access to
available shows a mixed picture. While the increase in initial public offerings (IPOs)
a poor result considering the average of 46 operations in rapid growth G20 markets
last year).
entrepreneurs perceived an improvement in the availability of private equity (PE) to
decline for the G20 in the period as a whole. Furthermore, it is in sharp contrast to
average rapid growth economy (although this was also skewed not by China, but by Brazil, where PE deal volumes skyrocketed
2005–10, a good performance compared
funding instrument in Mexico, and one-third of our survey respondents reported
importance. It is witnessing considerable growth in Mexico in terms of the institutions providing services and the number of clients. In 2007, around 1.6 million people, of
services5
MexicoPerceptionbarometer2005–106
G20 averagePerceptionbarometer2005–102010 Change
2005–102010 Change
2005–10
Business Angels (number of networks)4 n.a. n.a. + n.a. +48% +
Venture Capital (US$m) 27.9 +32% + n.a. +17% +
SME bank loans (% of GDP) n.a. n.a. + 14.1% n.a. +
Private equity (US$m) (2005–06) 81 -69% + n.a. -22% +
SME stock markets (number of listed companies) n.a. n.a. + n.a. +32% +
IPOs in main stock market (number of deals) 5 +400% + n.a. +12% +
Entrepreneurs strongly believe (82%) that government has a have a role to play to facilitate access to funding for young entrepreneurs.
Access to funding
A challenge to overcome
n.a : Data not available
4. G20 average of the seven countries for which data is available through The European Trade of Association for Business Angels (EBAN)5. Source : ProDesarrollo, 2007
32% will lead emerging funding instruments. Over 1.6m entrepreneurs already used this service in Mexico.52%
of respondents think better access to bank loans will have a high impact on their business growth (exceeding the 45% of G20)
5Entrepreneurs speak out The Nice Côte d'Azur 2011 Entrepreneurship Barometer | Mexico digest
Even if entrepreneurs often mention excessive regulation and taxes as a hurdle to the development of their companies, starting a business takes only 9 days, thanks to a dramatic cut of 49 days since 2005. This is a better score than in the
members that are rapid growth markets
was also greater than in both groups
The number of procedures that startinga business requires is also lower in Mexico (6) than in both the average G20 country (7.7) and the mean of rapid growthmarkets in the group (9.5). Nonetheless, the cost to start a business measured asa percentage of income per capita is higher
While setting up a business is relatively easy in Mexico, the country less prepared to compete in the global knowledge economy as shown by the low average number of patents compared with G20 peers.
Mexico G20 Mexico G20 average
Perception barometer 2005–10
2010 Change 2005–10
2010 Change 2005–10
Innovation incentives + + Tax subsidy rate for US$1 of R&D, SMEs — 2008 -0.012 n.a. 0.148 n.a.
Tax incentives - + Start-up incentives (% of GDP) 2005–08 n.a. n.a. n.a. n.a.
Ease of startinga business
+ + Number of procedures to start a business 6 -3 7.7 -1.4
Time to start a business (days) 9 -49 22.3 -18.1
Cost to start a business (% income per capita) 12.3 -3.3 p.p. 10.6 -9.8 p.p.
Intellectual Property (IP) protection
+ + Number of patents 2005–096 14,281 -1% 126,375 +9.6%
Business regulation + + Time spent on tax issues (hours per year) 404 -148 367.1 -72.4
Labor market rigidity + + Cost of hiring 0.11 n.a. 0.3 n.a.
Notice period 0 n.a. 5 n.a.
Severance costs 22 n.a. 12.2 n.a.
n.a : Data not availablep.p.: percentage points
establishing new businesses.
Regulation and taxation
A very friendly regulatory framework
9 days are required to starting a business in Mexico (22 days in the G20)
6 Entrepreneurs speak out The Nice Côte d'Azur 2011 Entrepreneurship Barometer | Mexico digest
Coordinated support
Tailored assistance available
exceeds that of the average of rapid growth marketsin the G20 (56%) and the group as a whole (49%).
The vast majority of Mexican entrepreneurs
most effective organization supporting
long-term growth. The Sistema Nacional de Incubadoras de Empresas (SNIE) will continue to improve this situation. This program is made up of all incubators that utilize best practices in business incubation
and thereby receive recognition from the Ministry of Economy. It has nationwide coverage and aims at strengthening the relationship of its members, so that they are able to exchange experiences and create more competitive companies.
The majority believes that the quality of the support that these organizations offer, by and large, has improved in recent years, with the leading advances seen in incubators whose performance was better
Mexican entrepreneurs think that the coordination of the support they receive
the collaboration and cooperation between these organizations improved in the last
How would you evaluate the coordination between governments, associations and education systems in your country?
The Nice Côte d'Azur 2011 Entrepreneurship Barometer by Ernst & Young
Do young entrepreneurs benefit from tailored support in your country?
The Nice Côte d'Azur 2011 Entrepreneurship Barometer by Ernst & Young
Well coordinated 40%
Poorly coordinated60%
Mature markets: 41%Rapid-growth markets: 51%
The Nice Côte d'Azur 2011 Entrepreneurship Barometer by Ernst & Young
Impa
ct o
f nex
t thr
ee y
ears
Chamber of Commerce
Entrepreneurs'clubs and associations
Incubators
Mentoring program
20.0
40.0
60.0
80.0
10.0 20.0 30.0 40.0
Coordinated support — Entrepreneurs' perception of progress and future impact
Yes
60%
No
38%
Can’t say
2%
Mature markets: 42%Rapid-growth markets: 56%
46% believe incubators have a high impact on growth compared with the average G20 28%
7Entrepreneurs speak out The Nice Côte d'Azur 2011 Entrepreneurship Barometer | Mexico digest
Launch date Main application area
Programa de Convocatoria de Becas 2010 — scholarships program 2010
The Ministry of Economy provides this support to business people, that through their interestin acquiring knowledge, contribute to the creation and development of businesses and meet
2010 Education and training
Programa de Incubadoras de Empresas — company incubator program
This program has national coverage. It targets entrepreneurs who want to start a company,as well as intermediary organizations that seek to obtain support to establish a business incubatorin the following areas: transfer of an incubation model; equipment, infrastructure and business consulting in training and development of the National Campaign for Entrepreneurship; and transfer methodologies.
2007 Access to funding, coordinated support, regulation and taxation, education and training
Programa de Incubadoras de Negocios para Jóvenes (PROJOVEM) — business incubator program for youth
The objective of this program is to provide temporary support to assist in the creation and strengthening of microenterprises and SMEs for youth in the rural sector. It seeks to provide alternatives for young entrepreneurs in rural areas through business incubators that encouragethe creation of agribusiness and alternative tourism enterprises.
2006 Access to funding, entrepreneurial culture
Programa Nacional de Emprendedores — national entrepreneurship program
This program aims to promote and encourage all Mexicans in the entrepreneurial culture resulting from the creation of more and better micro and small businesses through the national network of incubators.
2007 Access to funding, entrepreneurial culture
The program provides consulting, training and support through professional advisors and aims to help entrepreneurs identify the key factors and critical elements to successfully starting a business.
entrepreneurs.
2011 Access to funding, coordinated support, education and training
Sistema Nacional de Incubadoras de Empresas — national system of incubator companies
The system is made up of all those incubators that utilize leading practices in business incubation and thereby receive recognition from the Ministry of Economy. The system has nationwide coverage and aims at strengthening the relationship of its members, so that they are able to exchange experiences and create more competitive companies.
2004 Coordinated support, regulation and taxation, education and training
Selection of Government leading practices
8 Entrepreneurs speak out The Nice Côte d'Azur 2011 Entrepreneurship Barometer | Mexico digest
Methodology
Access to Funding
Business angelsNumber of business angel networks [EBAN]
Venture capital (VC) fund-raisingEquity invested (US$m) [TO]
SME lending
Private equity (PE)Deal value (US$m) [DL]
SME stock marketsValue of shares trading (US$m) [WFE]Number of listed companies [WFE]
Broad public stock market Value of shares trading (US$m) [WFE]Number of listed companies [WFE]
Initial public offering (IPO) broad and junior market activity
IPO number of deals [DL]IPO capital raised [DL]
Entrepreneurship culture
Innovative environment
Researchers in R&D (per million of population) [WB]
Regulation and Taxation
Tax subsidy rate for US$1 of R&D SMEs [OECD][OECD]
Starting a businessNumber of procedures [WB]Time (days) [WB]
Number of patents [WIPO]Time spent on tax issues (hours/year) [WB]Cost of hiring, severance cost and notice period [WB]
Education and Training
Tertiary-type A and advanced research program (number of graduates) [OECD]
Sources: Dealogic (DL), World Bank (WB), EBAN: European Business Angel Association, WFE: World Federation of Exchanges, WIPO: World Intellectual Property Organization, CIQ: Capital IQ data, OECD: Organization for Economic Cooperation and Development, ThomsonOne (TO).
Further details can be found in the methodology section of The Nice Côte d'Azur 2011 Entrepreneurship Barometer by Ernst & Young
barometer, our analysis of the G20 country environment is articulated around
regulation and taxation, education andtraining, entrepreneurship culture,
Young Entrepreneurs’ Alliance (YEA) inToronto, Canada (20–22 June 2010).Our analysis is based on four building
perception survey conducted across the G20 countries, qualitative interviews ofemblematic entrepreneurs and an analysisof G20 governments’ leading practices.
Throughout this report, we have used the
Young entrepreneurs are young women and men aged between 18 and 40.The split of country groupings between mature markets (MMs) and rapid growth markets (RGMs) is based on the
Monetary Fund (IMF)
all the G20 countries for small and medium enterprises (SMEs), we have adopted each country’s respective
We conducted a perception survey with an international panel of 1,001 entrepreneurs across the G20 countries (50 interviews per
by CSA Institute between 27 May and 7 July 2011. The perception barometerwas calculated using a weighted average ofcountry performance scores.
1 entrepreneurs’ perception as well as government leading practices in order to provide key ecommendations to governments and entrepreneurs.
2 entrepreneurship environment to provide a better understanding to entrepreneurs considering international expansion.
3Highlighting the main conclusions of the report, the barometer website provides further Government leading practices and entrepreneurs
success stories. www.ey.com/entrepreneurship-barometer
Entrepreneurs speak outA call to action for G20 governments
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Contact(s)
Guadalupe CastañedaMexico Strategic Growth Markets Leader
Mauricio GalindoMexico Entrepreneur Of The Year Leader
Growing Beyond
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This report has been produced in collaboration with Oxford Analytica (www.oxan.com), an independent
authoritative analysis of the macro environment.