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9.25.2006

What drives an entrepreneur

Excerpts from an article written by Ed Morato, one of the most respected professors at the Asian Institute of Management:

"The Global Entrepreneurship Monitoring (GEM) Report (2001) cited a strong correlation between entrepreneurial activity and economic growth as revealed by their studies on 29 countries. For the Philippines, this was validated by the writer's time series analysis (1970-2001) showing the correlation between the establishment of new enterprises and gross domestic product (GDP).

From the 21-year data base, the researcher discerned a revealing pattern. The dramatic growth in new enterprises coincided with periods of high political and social stability (i.e. the first seven years of martial law, the first three years of President Cory Aquino's government and the entire six years of President Fidel Ramos). The abrupt entrepreneurship falls coincided with periods of high political and social instability (i.e. the waning years of President Ferdinand Marcos when he was reportedly sick, the last three years of Aquino following the military coups and power crisis, and the years of President Joseph Estrada).

The researcher concluded that political and social stability is the necessary condition that would create an attractive economic environment for entrepreneurship."

In conclusion, he wrote;

"From the 59 specific factors, the researcher concluded that seven general factors influence entrepreneurship significantly. These are the following:

1. Macroenvironmental factors: Political, economic and social
2. Cost of doing business: Includes logistics and transport costs, utilities, credit, taxes, incentives, informal and extra-legal costs
3. Cost of producing products and delivering services: Includes raw materials, supplies, semi-processed goods, cost of servicing customers, professional services, labor costs, overhead expenses, rent, etc.
4. Market opportunities: Actual and potential demand and supply conditions, market and customer characteristics, needs and wants, market structure and environment, market trends
5. Industry clusters: The concentration of competing and complementary enterprises within an area
6. Ancillary and Related Industries: Industries and enterprises that comprise the supply and market chains of a major industry grouping
7. The Entrepreneurs: The characteristics, traits, personal conditions, background, talents, skills, education, training and history of the entrepreneurs themselves

The survey yielded a major conclusion: Entrepreneurs, first and foremost, look at themselves, their personal capital and their capacity to run an enterprise before venturing into business.

At the same time, they are very sensitive to the investment signals sent by the macro environment. If the investment climate looks favorable, they muster the confidence to invest.

Next, they assess the basics of producing their products or services, which are driven by the two major costs--raw materials and labor costs--and by the cost of doing business--led by infrastructures and utilities. Then, they evaluate the industry cluster conditions, focusing on the availability of capital, raw materials and natural resources."

Along with this, entrepreneurs examine the related, ancillary and support services they can avail of. Finally the entrepreneurs discern the attractiveness of the market opportunities presenting themselves in terms of their profit and growth potentials.

Read the entire article here

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