Corporate Aug 2, 2012
Widespread corruption, government hurdles, lack of funding and poor technology and training have resulted in low efficiency and high start-up costs in India, making the country the worst for entrepreneurshipin Asia, according to a Gallup poll.
Willingness to take the risk of running a business is not a common trait among Indians
The survey, however, noted that India has an abundant reserve of entrepreneurial talent. It found that business thinking, optimism and persistence - all important for entrepreneurs - are common traits among Indians. But it found that the willingness to take the risk of running a business is not a common trait among a majority of Indians.
"More than 60% of the Indian population possesses personality traits that are crucial for success as an entrepreneur -- such as business thinking (69%), optimism (66%), and persistence (65%) -- which suggests a wealth of entrepreneurial capacity. However, willingness to take the risk of running a business is not a common trait among a majority of Indians," it said.
The Gallup study found that only 16 percent from a sample of 5,000 own business, of which only a fifth had formally registered.
One of the major factors hindering entrepreneurship is that it is not easy to start a business in India.
"In addition, the World Bank's report 'Doing Business 2012: Doing Business in a More Transparent World' ranks India at 166 among 183 countries in terms of starting a business. This ranking is unchanged from 2011, indicating that little progress has been made toward reforming rules and procedures to benefit those planning to start a business," the study said.
Reliable support from honest and efficient government institutions is essential
According to the survey, around 46 percent of Indians say the government is the biggest stumbling block to starting a business. More than seven in ten adults believed corruption is widespread in the government. More than six in 10 agreed that corruption is widespread in business. This perception was particularly high among current business owners (72 percent) and those planning to start a business in the next 12 months (80 percent), it added.
Entrepreneurs need more diversified, localised funding at the initial stage.
The most helpful factor in becoming an entrepreneur in India is access to funding. However, "The key problem for entrepreneurs seems to be less about the availability of funding and more about finding the right type of funding. The majority of existing venture capital funds for start-ups are focused on export-oriented IT or mobile solutions," the study said. Few seem to facilitate startups that offer the high-demand products and services in the healthcare or energy sectors in India's massive domestic market.
Foreign investors need to understand India's business culture
Another problem with funding is the disconnect between investment funds and local entrepreneurs. This is because foreign investors ignore India's unique market demands, talent supply and business culture. Instead they often make inaccurate assumptions based on what has worked well in their home countries and other emerging markets, said the study.
Moreover, the lack of angel or seed funding and investor participation in managing start-ups in India acts as another hurdle. Venture capitalists in India choose to only finance expansion of existing businesses, rather than funding a start-up from scratch.
Indian entrepreneurs need more access to training and mentorship
Gallup also found that 22 percent of aspirational entrepreneurs who plan to start their business in the next 12 months have access to formal or informal training to start a business - which is much lower than the Asia average of 44 percent.
Secondly even though India has some high-profile entrepreneurs who can serve as inspirational icons, there are not many who offer success stories from which aspiring entrepreneurs can learn.
And finally, finding trusted partners is another big problem
Only 16 percent of Indian adults say a non-relative can be a trusted business partner, the survey said. The lack of judicial infrastructure on enforcement does little to protect the trusting relationship between entrepreneurs and business partners or between entrepreneurs and customers.
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