PUTTING THE YOUNG IN BUSINESS:

 POLICY CHALLENGES FOR YOUTH ENTREPRENEURSHIP 

BY

SULTAN REHMAN SHERIEF
Senior Lecturer,
Faculty of Business Management and Professional Studies,
Management and Science University,
Shah Alam, Selangor, Malaysia
&
SHABINA REHMAN
Counselor, Vocational Training Centre,
Montfort Boys Town, Shah Alam,
Selangor, Malaysia

I. INTRODUCTION

Reducing youth unemployment is one of the major challenges facing most governments in the world. According to the International Labor Office (ILO), an estimated 88 million young women and men worldwide are unemployed. Youth are generally three and a half times more likely than adults to be unemployed. The need for employment creation efforts focusing on youth is undeniable.  In 2015, approximately 660 million young people will either be working or looking for work – an increase of 7.5 per cent over the 2003 figure.

While bound up with the overall employment situation, this challenge has its own specific dimensions and therefore requires targeted responses. Although the crucial role played by entrepreneurship in driving economic development and job creation is increasingly understood, there has been little effort to look at it from a youth perspective. (Audretsch; Thurik, 2001) Young people are mostly treated as part of the general adult population, while their specific needs and particular entrepreneurial potential as well as their critical contribution to economic and social progress are underestimated. There is still a general lack of in-depth research and concrete data on youth entrepreneurship especially as it relates to different (entrepreneurial) framework conditions and to the creation of new firms. This research article aims to address this gap.

II. FACTORS THAT INFUENCE YOUTH ENTREPRENEURSHIP

The purpose of this essay is to obtain a clearer and more comprehensive picture of specific constraints that impede young people from starting and running a business. In turn, this research should help policy makers to form appropriate incentives and stimuli to make business a viable alternative for youth. In this context, the study takes a closer look at crucial factors for entrepreneurial engagement, including:

1.                  Social/cultural attitude towards youth entrepreneurship

2.                  Entrepreneurship education

3.                  Access to finance/start-up financing

4.                  Regulatory framework conditions

5.                  Business assistance and support (BAS)

The research findings should stimulate policy debate on the factors that foster or impede youth entrepreneurship and the policy measures that can support it. For each of these factors we outline the key deficiencies, constraints and impediments for young people.

II. 1. SOCIAL AND CULTURAL ATTITUDE TOWARDS YOUTH ENTREPRENEURSHIP

As cultural and social backgrounds influence an individuals’ approach to life, they similarly influence entrepreneurial activity and enterprise culture. Gibb (1988) defined an enterprise culture as “set of attitudes, values and beliefs operating within a particular community or environment that lead to both “enterprising” behavior and aspiration towards self-employment.”

Researchers have long realized that cultural attitudes influence the entrepreneurial activities of a population, a country, region or ethnic group and that the interaction between culture and entrepreneurship is stronger in the case of some groups than others. (Birley, 1987; McGrath et al., 1992; Kreiser et al., 2001; Hofstede, 1980) Thus cultural differences between nations are increasingly understood as an important determinant of a nation’s level of economic and entrepreneurial development. (McGrath et al., 1992; Mueller, 2001; GEM, 2004)

A cultural environment in which entrepreneurship is respected and valued, and in which business failure is treated as a useful learning experience rather than a source of stigma, will generally be more conductive to entrepreneurship. (OECD, 1998)

1.1 The role of religion, cultural values, beliefs and behaviors

Religion is one cultural aspect that has a complex interdependent relation with enterprise. (Carswell; Rolland, 2004)  Religion can shape the values and beliefs of a person, can have an influence on entrepreneurial behavior in general and the nature and the type of business as well as women’s participation in business in particular. However, recent studies on the influence of religion on business provide anecdotal evidence that faith does not exert as important an influence as might be expected on entrepreneurial behavior. (Basu, 2002; Carswell and Rolland, 2004) However, there is still a general lack of in-depth research on the relation between religion and economic and social entrepreneurship.

Culture is the system of collective values that distinguishes the member of one group from another.61 (Hofstede, 1980; Mueller, 2001) Hofstede conducted perhaps the most commonly employed approach to understand on how values in the workplace are influenced by culture. He developed a model that isolates four primary dimensions to differentiate cultures (“uncertainty avoidance”, “individualism”, “masculinity” and “power distance”). These values again have an influence on individual’s needs and motives (e.g. for achievement. affiliation or the pursuit of individual and social goals) and their beliefs, behavior and orientation (e.g. risk-taking. proactive-ness and self efficacy). (Hayton et al., 2002) Therefore, differences in these values may have an influence on entrepreneurial behavior and the decision of whether or not to become an entrepreneur. For example, uncertainty avoidance or acceptance in a culture is strongly linked to the level of risk-taking and proactive-ness of an individual or an organization. Individuals (like entrepreneurs) with a high need for achievement, such as those in uncertainty accepting societies, will be more willing to take risks than individuals in uncertainty avoiding societies. (Kreiser et al., 2001)

1.2 The social legitimacy and perception of entrepreneurship

According to Wilken (1979), the degree of approval or disapproval of business activity will influence its emergence and characteristics, being favored by those environments in which entrepreneurs enjoy greater legitimacy.

How young individuals perceive entrepreneurship depends particularly upon:

ü      Their personal environment.

ü      Their individual awareness and familiarity with the concept of entrepreneurship; and

ü      The general reputation, acceptance and credibility of entrepreneurs in society.

1.2.1 The role of the personal environment

Parents, relatives and friends can have a crucial influence on young people’s opinions about entrepreneurship, playing a strong role in imparting positive or negative views of business. Family background, in particular, plays an important role in the formation of a mindset open to self-employment and entrepreneurship. Some studies suggest that overall family background seems to play a more important role in the entrepreneurial attitude of students than general cultural variables associated with the country. (Postigo et al., 2003)

1.2.2 Success, reputation and credibility of (young) entrepreneurs in society

The image, reputation and credibility of entrepreneurs in a society can also have a crucial influence on young people’s attitude to entrepreneurship and on their decision to start up their own enterprise. The appreciation and assessment of entrepreneurs can range from them being regarded as successful, honest, courageous, independent and innovative people who create jobs. (European Commission, 2004)  High levels of ethical misconduct like corruption and favoritism often imperil the acceptance of entrepreneurship in general and the reputation of entrepreneurs in particular. (Schramm, 2002)

1.2.3 Awareness, knowledge of and familiarity with the concept of entrepreneurship (through education)

The motivation to engage in business and the decision to become an entrepreneur is closely linked to the level of awareness about knowledge of and familiarity with the concept of entrepreneurship as being a viable career path. Among other social institutions, education has probably the most important impact on raising awareness and attractiveness to the characteristics and attributes of entrepreneurship. Education helps to arm young people with an understanding of and some of the skills necessary for entrepreneurship.

1.3 The legitimacy and acceptance of social entrepreneurship

Primarily young people need to have an insight into social problems. They also need successful role models, particularly younger ones and the opportunity to obtain knowledge of the social entrepreneurship process. However, societies continue to view entrepreneurship only in narrow economic terms rather than embracing its potential wider social benefits. Specific risk appraisal of young people, coping with the stigma of failure, a high level of uncertainty avoidance in a society combined with a rather skeptical or negative perception of entrepreneurship often leads to a stigma being attached to any failure in a commercial venture. This fear of failure is a further strong disincentive to engage in business, for young people.

1.4 Problems experienced by young entrepreneurs in the course of running a business

• Not being taken seriously by colleagues or business contacts
• Age discrimination by suppliers or customers
• Difficulties in attracting funding to the business
• Age discrimination by institutions or the Government
• Lack of support from family or friends

II. 2. ENTREPRENEURSHIP EDUCATION

According to Henry Ford, a country's competitiveness starts not on the factory floor or in the engineering lab- it starts in the classroom. Entrepreneurship education is crucial in assisting young people to develop entrepreneurial skills, attributes and behaviors as well as to develop enterprise awareness, to understand and to realize entrepreneurship as a career option.

Thus entrepreneurship education is not only a means to foster youth entrepreneurship and self-employment but at the same time to equip young people with the attitudes (e.g. more personal responsibility) and skills (e.g. flexibility and creativity), necessary to cope with the uncertain employment paths of today’s societies. Young people can no longer expect to find the traditional ‘job-for-life’ careers but rather ‘portfolio careers’ (contract employment, freelancing, periods of self-employment, etc.) Enterprise education is therefore seen as a highly valuable preparation for the changing job market and economy in which young people have to operate. (Gallaway et al., 2005)

In the past 10 to 15 years, entrepreneurship education has grown dramatically throughout the world, particularly in those countries already known as entrepreneurial such as the US, Canada and Australia. This growth is reflected in the development of numerous new entrepreneurship curricula, study programs and initiatives, as well as increasing research activities on enterprise education in general, and on its various effects and best practices in particular. Since enterprise awareness programs at primary and secondary schools have long-term effects, impact assessment is difficult. (Moran; Cooney, 2003)  That is why many impact assessment studies and evaluations so far mainly focus on college and university programs, having medium- and even short-term effects on business creation and entrepreneurial activity.

2.1. Key educative constraints to Entrepreneurship

• General lack of introduction and adoption of enterprise education
• Inadequate curricula and study programs
• Wrong learning methods
• Negligence of students’ personal environment (parents and family members)
•  Lack of trained/educated teachers
• Lack of career information and business possibilities
• Lack of business and education linkages
• Lack of ICT infrastructure/capability.

II. 3. ACCESS TO START-UP FINANCE

According to most young aspiring entrepreneurs in Australia “Young people aren’t short on passion or guts, they’re short on cash.”(FaCS, 2003) The lack of adequate start-up finance is one of the most prominent and most talked about impediment to young people seeking to create their own business. According to the Eurobarometer Survey (EC, 2004), young people (aged 15-24) seem to be the strongest supporters of the perception that the lack of available financial support is an obstacle to setting up a business. About 78 per cent of the respondents (aged 15-24), compared to 73 per cent of all other age cohorts, agreed to this affirmation. The lack of finance was also considered to be a more severe barrier than administrative procedures/burdens or an unfavorable economic climate.

Young entrepreneurs often launch their businesses without carefully estimating the amount of capital (start-up and working capital) they will need to actually get started. Many insist that passion and enthusiasm will be enough to get them through the rough periods. Furthermore, young entrepreneurs are often not aware of all available types of finance, funding forms and special support programs. They do not understand the concept, the benefits, the possibilities and the drawbacks of the numerous forms of debt and equity (venture capital) financing. Due to the lack of self-sustaining resources, the absence of a substantive credit history, sufficient collateral or guarantees to secure loans or lines of credit, young people are often seen as particularly risky investments and therefore face difficulties in accessing finance. Another key concern when lending money to young entrepreneurs is the lack of experience and business skills. Because of their age, young people are unlikely to have the type of business experience, track record or business skills that banks or other financial institutions would look for in assessing creditworthiness. A summary of the main constraints faced by young entrepreneurs is listed below-

3.1 Key constraints to start-up finance

• Lack of personal savings and resources
• Lack of securities and credibility (for debt financing)
• Lack of business experience and skills (for debt financing)
• Strict credit-scoring methodologies and regulations
• Complex documentation procedures
• Long waiting periods (time needed to decide on an application for funding)
• Lack of knowledge, understanding, awareness of start-up financing possibilities
• Unfavorable firm characteristics and industry
• Legal status/form of enterprise
• Lack of (successful) micro lending/-finance and seed funding.

3.2 Improving the access to finance

Some of the major strategies, initiatives and key tools that may be used to improve and expand the access to finance for young people can be broadly divided into four categories:

• Research into start-up and business finance
• Provision of start-up and business capital
• Improving the regulatory environment for start-up finance
• Information and counseling on access to finance and funding.

II. 4. ADMINISTRATIVE AND REGULATORY FRAMEWORK

The impact of administrative and regulatory burdens on youth entrepreneurship and business in general is also a fairly new area of research. However, these burdens are among the most important barriers to start-ups of young people in high-income and developing countries. Government regulations and bureaucratic formalities also are seen as one reason for large informal sectors in many developing countries, since the costs of formalizing are higher than the gain in productivity from entering the formal sector.

4.1 Key administrative burdens

• Unsupportive tax regimes (system and tax levels)
• Business registration procedures and costs
• Bankruptcy laws
• Time and costs involved in insolvency proceedings
• Ineffective competition law
• Regulatory framework changes and lack of transparency
• Property rights, copyright, patent and trademark regulations.

II. 5. BUSINESS ASSISTANCE AND SUPPORT (BAS) AND BUSINESS DEVELOPMENT SERVICES (BDS)

The more business assistance a young entrepreneur obtains in the start-up and new business phases the better his or her chance of creating a successful and sustainable business. Support services, including mentors, support networks, business clubs and incubators can hold the key to transforming one-person youth start-ups into successful small and medium businesses.

5.1 Key deficiencies in the area of BAS/BDS

• Lack of business connections: Business contacts, suppliers, suitable partners and networks
• Lack of knowledge of available business support services
• Lack of tailor made business training and advice for young start-ups
• Lack of trained counselors, development workers and adequate support agencies
• Lack of mentoring capacities
• Lack of workspace and ICT infrastructure
• Lack of exchange networks, forums and meeting places
• Lack of other business development services.

5.2 Improving business support and assistance for young people

Some of the major strategies, initiatives and tools that can be used to improve Business Assistance and Support (BAS) for young people can be divided into four categories:

• Research on business assistance and support
• Provision of business skills training, guidance and counseling services
• Provision of working infrastructure
• Promotion of enterprise integration and business linkages.

III. PROMOTING AN ENTREPRENEURIAL CULTURE AMONG YOUNG PEOPLE

According to Stevenson and Lundström (2001), promoting an entrepreneurial culture is one of the most underdeveloped strategic areas of entrepreneurship development worldwide, poorly articulated in policy terms and the most subject to rhetoric. To change the pattern of cultural determinates is a medium or long-term process.

Moreover, it is a multi-faceted commitment, as culture is complex and difficult to change. It requires a combination of specific programs and initiatives to create positive attitudes towards entrepreneurship and entrepreneurs. Best practice countries are probably those such as the United States, Canada, Australia and New Zealand that use a combination of approaches to promote entrepreneurship. Some of the major initiatives and instruments currently used in different countries to raise the profile and attractiveness of entrepreneurship for young people may be outlined as –

6.1 Research: Understanding cultural influences on entrepreneurship and assessing the attitude, awareness and aspirations of young people towards it

In order to promote an entrepreneurial culture among young people, it is crucial to know more about young people’s attitude, awareness and aspirations towards entrepreneurship and business. Before targeting them with particular interventions and initiatives to raise their entrepreneurial profile appropriate research and testing are necessary. In this context it is advisable to:

ü      Assess young people’s level of awareness, attraction and involvement with business and enterprise, in order to establish a benchmark of their current attitudes and behaviors with the subject topic.

ü      Identify and test initiatives that would increase young people’s interest with business and entrepreneurship. (Kalafaltelis; McMillen, 2004)

6.2 Promotion of role models

Successful social or private, youth or adult entrepreneurs are probably the best ambassadors for promoting entrepreneurship among young people. By delivering an image of independence, success and achievement, they can motivate young people to consider and explore entrepreneurship and self-employment. The more a young person knows a successful entrepreneur, the more likely he or she might become interested in starting a business because they have a role model to follow. Moreover, when supported by media campaigns, credible role models can have an influence on young people’s personal environment, so that parents and relatives will change their attitude to entrepreneurship as well and encourage their children to engage in this field. In this context it is important to note that role models are most effective when reflecting the image of the group whose behavior is to be influenced.

6.3 Public Relations Campaigns, competitions and awards, media coverage, youth business events

Public Relations campaigns, events, competitions and awards are another way of raising the profile of entrepreneurship for young people. Youth business events (e.g. gatherings. expositions. fairs. galas. concerts. open business days), whilst tapping into youth culture, can be useful instruments for introducing entrepreneurship to youth. Moreover, they provide good opportunities for media exposure. Business competitions and awards provide special incentives for ambitious young people. The impacts of business competitions (business plan competition, simulation games, mini companies, awards) are much broader – they attract young men and women to the support services that are offered as a part of the competition.(White; Kenyon, 2001)

6.4 Introduction and promotion of the entrepreneurial culture through education

Learning about business development, administration and management as well as learning the necessary skills, attributes and behaviors creates positive attitudes towards entrepreneurship and has a significant impact on a young person’s decision to become an entrepreneur.

Enterprise education interventions provide a considerable added value in many ways:

• Through awareness raising and familiarizing young people with entrepreneurship as a valuable career path, it promotes positive attitudes towards entrepreneurship and thus a higher acceptance and legitimating in society in the long run.
• Providing pupils and students with entrepreneurial skills, attributes and behaviors has a positive effect on a young person’s decision to engage in entrepreneurial activity. Thus it increases the number of so-called “Pre-entrepreneurs” (potential or would-be entrepreneurs). Enterprise education interventions therefore have probably the biggest impact on the generation of potential future young entrepreneurs.
• Entrepreneurial skills and attitudes are also increasingly important to cope with today’s changing of career patterns. Thus it improves young peoples’ general employability on today and tomorrow’s labor markets.
• Furthermore, it can be expected that a successful enterprise education will create further demands in other areas outside the school (finance, regulations, BAS and BDS), that can lead to further initiatives and support programs, catered to the specific needs of young people and entrepreneurs.
• Providing young people with the right attitude and the necessary tools will enable them to overcome many of the existing barriers to entrepreneurship themselves.

IV. CONCLUSION

We have learned significant lessons about how to foster an entrepreneurial culture globally that encourages and supports people, particularly young women and men, in the context of creating decent work for all. The key challenge is figuring out the best ways to unleash the potential of all people to innovate, create, catalyze, be resourceful, solve problems and take advantage of opportunities while being ethical. Clearly the secret to a bountiful harvest lies in our early treatment of children and the pervasive messages and signals they receive while growing up. An entrepreneurial culture for social and economic development is an act of creation that involves everyone and begins with each of us.

BIBLIOGRAPHY

Ø      Audretsch, D.B.; Thurik, A.R. (2001): Does entrepreneurship reduce unemployment? Tinbergen Institute Discussion Paper TI 2001-074/3. Rotterdam, Tinbergen Institute.

Ø      Basu, A. (2002): The Interaction between Culture and Entrepreneurship in London’s Immigrant Business. Centre for Entrepreneurship University Lecturer in Management Studies, Department of Economics.

Ø      Birley, S. (1987): 2New ventures and employment growth”. Journal of Business Venturing, 2(2). pp. 155-165.

Ø      Carswell, P.; Rolland, D. (2004): “The role of religion in entrepreneurship participation and perception” in: International Journal of Entrepreneurship and Small Business, 2004, Vol. 1. No.3/4 pp. 280-286.

Ø      European Commission (2004a): Flash Eurobarometer (2004) “Entrepreneurship” – Press Memo, Brussels.

Ø      Gallaway, L.; Andersson, M.; Brown, W.; Whittam, G. (2005): “The Impact of Entrepreneurship Education in Higher Education”, Report for Business Education Support Team, School of Management and Languages, Heriot-Watt University, Edinburgh.

Ø      GEM, (2004): Global Entrepreneurship Monitor 2003 Executive Report, Babson College, Babson Park, MA, USA/ LBS, London, UK.

Ø      Gibb, A. A. (1988): “Stimulating New Business Development” (What else besides EDP. in: Stimulating Entrepreneurship and New Business Development (Chapter 3), ILO, Geneva.

Ø      Hayton, J.C. et al. (2002): “National culture and entrepreneurship: A review of behavioural research”, in Entrepreneurship Theory and Practice, 2002, Vol. 26, No. 4, pp. 33-52.

Ø      Hofstede, G. (1980): “Culture’s consequences: International differences work-related values”. Newbury Park, CA: Sage Publications.

Ø      International Labor Office, 2006. SEED Working Paper No.76, Series on Youth and Entrepreneurship Stimulating Youth Entrepreneurship: Barriers and incentives to enterprise start-ups by young people by Ulrich Schoof, International Labour Office, Geneva.

Ø      Kalafaltelis, E.; McMillen, P. (2004): “Developing a culture for entrepreneurship among young people in New Zealand”. Quantitative Benchmark Survey – prepared for Trade and Industry (New Zealand).

Ø      Kreiser, P. M.; Marino, L.; Weaver, K. M. (2001): “Correlates of Entrepreneurship: The Impact of National Culture on Risk-Taking and Proactiveness in SMEs”. University of Alabama, Department of Management and Marketing.

Ø      Lundström, A.; Stevenson. L. (2001a): “Entrepreneurship Policy for the Future”. Swedish Foundation for Small Business Research. Stockholm.

Ø      McGrath, R.G.; Macmillan, I.C.; Scheinberg, S. (1992): “Elitists, risk-takers, and rugged individualists? An exploratory analysis of cultural differences between entrepreneurs and non-entrepreneurs.” Journal of Business Venturing, 7, pp. 115-135.

Ø      Moran, M.; Cooney, Th. M. (2003): “To What Extent Can the Impact of Enterprise Education Be Truly Evaluated by State Enterprise Development Agencies?” RENT Conference, Lodz.

Ø      Mueller, S.L.; Thomas, A.S. (2001): “Culture and entrepreneurial potential: A nine country study of locus of control and innovativeness”, Journal of Business Venturing, 16, pp. 51-75.

Ø      OECD, (1998): Fostering Entrepreneurship, Paris.

Ø      Postigo, S.; Iacobucci, D.; Fernanda, T. (2003): “Undergraduate Students as a Source of Potential Entrepreneurs: A Comparative Study between Italy and Argentina”. Paper presented at the 13th global IntEnt – Internationalizing Entrepreneurship Education and Training Conference, 8-10 September 2003, Grenoble, France.

Ø      Schramm (2002): “The High Price of Low Ethics; How Corruption Imperils American Entrepreneurship and Democracy”, University of Rochester.

Ø      Schoof, Ulrich (2006): “Stimulating Youth Entrepreneurship: Barriers and incentives to enterprise start-ups by young people” SEED Working Paper No. 76, International Labor Office.

Ø      White, S.; Kenyon, P. (2001): “Enterprise-Based Youth Employment Policies, Strategies and Programmes”. Initiatives for the development of enterprise action and strategies, Working Paper, InFocus Programme on Skills, Knowledge and Employability, ILO, Geneva.

Ø      Wilken, P. (1979): “Entrepreneurship: a comparative and historical study.” Ablex Publishing Corporation, New Jersey.