gE Blog Series: Global Entrepreneurship Week Part 3 - Entrepreneurship in Emerging Markets

Entrepreneurship is the key, long-term growth driver of any country's economy. Not only do small businesses, in aggregate, add more jobs than large corporations, they are usually the companies leading technological breakthroughs. These small businesses are clearly very important to every country, but they face different challenges and rewards when operating in developed and emerging markets. In developed markets, small businesses must compete against large, successful firms, but enjoy a stable government and well-established business guidelines. Small business in emerging markets, on the other hand, encounter political risks and many times security threats in order to have the opportunity to profit from a vast, untapped business potential. Regardless of the risks, small business in emerging markets are attracting capital on a global scale and taking advantage of these key growth markets.

Pakistan is an emerging success story whose business owners have fought corrupt government regimes and natural disasters to profit from one of Asia's fastest-growing economies. Pakistan is benefiting from a growing middle class as well as a relatively young population. These trends can be quantified by a recent Wall Street Journal article discussing the astonishing growth in the past eight years, "sales of cars have climbed 20% annually, televisions, 29%, and air conditioners, 206%. Over the past four years, economic growth has averaged 7%." Many successful businesses have also been helped by new government policies designed to increase competition and benefit consumers. Allowing banks to be owned by foreign entities have increased the availability of credit while the recent restructuring of a telecommunications monopoly has lowered the cost of mobile and data connections. As a sign to the growing middle class, businesses that sell almost exclusively discretionary products have been growing very well. Success stories include home furnishings, health clubs, cosmetic surgery, wealth management and high-end boutiques.

Like Pakistan, Tunisia also has a large percentage (55%) of its population under the age of 25. This makes job creation by entrepreneurs paramount to keeping its citizens happy and its college graduates employed. Tunisia made a series of missteps by focusing its growth strategy on industries that required low cost labor (textiles & manufacturing) and tourism aimed at Europeans with medium-to-low incomes. These industries have not been able to absorb the influx of recent college graduates in the the market place and many place unemployment for college graduates at 30%. This has led many recent graduates to start their own firms instead of being forced to work in an industry unrelated to their studies. New programs are currently being developed to provide loans to small business that are usually faced with securing difficult to find bank loans or loans from private institutions that require a 20% deposit.

Emerging market growth has historically been fueled by inexpensively manufacturing products for export to developed markets. While this works when you have the best infrastructure and lowest costs, a new country can undercut you at anytime - there is no competitive advantage. Countries who want to continue these growth rates must make the transition to expanding their middle class and increasing domestic consumption. Although this switch can be challenging, if done correctly these emerging markets can provide themselves sustainable growth and lift their societies to the next level of prosperity.