The Importance of Startups in Developing Countries And The Economic Obstacles Facing Entrepreneurship
Entrepreneurship is important to economic development and undeniably, there is a global drive to accelerate the growth and development of nations through innovation and creativity. Support for small and medium businesses has emerged as a top priority on the global agenda and are no longer seen as a threat to the established system.
With that in mind, policymakers have long accepted that entrepreneurs and startup companies have a critical role to play as key drivers of economic growth in both developed and developing countries.
New and young companies are the primary source of job creation in thriving economies, and entrepreneurial activity introduces new products and services. These new businesses also contribute to economic dynamism by injecting and intensifying competition into markets which cause consumers to benefit from lower prices and greater product variety and promotes greater upstream and downstream value-chain activities.
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The importance of entrepreneurship is evident as seen in recent initiatives focused on start-ups, especially in developing nations. Some nations have already advanced in the setting up of support systems and agencies to assist emerging entrepreneurs at each step of their journey by providing early-stage financing, technical training, and market intelligence. These systems will help to regulate the playing field for startups and entrepreneurs and may even guarantee a few successes through thorough coaching and mentoring.
Though this may be the case in many countries, entrepreneurs face economic and regulatory impediments that hinder them from development and progress and many other challenges exist.
Hindrances and underlying structural concerns remain, squeezing the dynamism out of entrepreneurship. There is also the declining share of the business community which may, in turn, be related to other discouraging economic trends, including stagnant wages and low economic mobility that inadvertently affect entrepreneurial activity and progress.
There is a great need for policies and progressive strategies from governments to encourage startups and provide access and assistance in key areas including tax clarity, incubation, affordability and licensing.
Entrepreneurship today is ‘survival driven’ self-employment, formed out of necessity, as well as opportunity motivated, largely because poverty and lack of formal employment opportunities rear its ugly head in striving economies. Unfortunately too, entrepreneurs respond to high regulatory barriers by moving to more innovation-friendly countries or by turning from productive activities to non-wealth-creating activities.
In this case, governments should be well prepared and dedicated to creating a culture of startups to impact the entrepreneurial ecosystem in their cities, countries and citizens. The benefits to society will be greater in economies where entrepreneurs can operate flexibility, develop their ideas, and reap the rewards. To produce effective entrepreneurs who can initiate change, governments need to cut ‘red tape’ and streamline regulations.
There are a few developing nations who recognize that opportunities for growth abound at an inconceivable scale, and they, therefore, assist entrepreneurs with poor knowledge of markets from developing countries, with gaining access to national, regional and international markets.
“Countries with the greatest needs, present the biggest opportunities.”
Though entrepreneurship can contribute significantly to the development of lower income countries, there are still obstacles that make it more difficult for the people living in these countries to become entrepreneurs, and thus contribute to the economic development of their country.
Funding is a daunting and difficult challenge for startups. It can be extremely difficult to get credit as a startup because the fact is, while every entrepreneur is sure they will succeed, most small businesses fail and investors know this.
Many entrepreneurs make critical mistakes in their fundraising strategies by failing to understand the differing needs of lenders and investors. When looking for the right investors, entrepreneurs require excellent financial skills.
Potential investors are interested in risk management and the capacity of the startup to repay the credit that is advanced to them.
Another issue facing entrepreneurs is the lack of supportive and market-augmenting governmental regulations. Unruly competitive markets set up barriers and have an unsupportive business environment. These hostile markets have strict requirements for market access and form constraints for entrepreneurs when they enforce regulations inconsistently.
Entrepreneurs are faced with ‘red tape’ bureaucratic governmental rules which obstructs the smooth flow of business operations, such as entry procedures (business registration and tax disadvantages etc). As a result, there is room for rampant corruption and bribery at all levels of the hierarchy.
One must be mindful though, that although there are obstacles that hinder the rate of entry of entrepreneurs into the market, not all entrepreneurs are productive and can contribute to the development of a country.
Some startups fail simply because their entrepreneurs fail to run a business in an effective, efficient, and efficacious manner. They are not cautious in the details of the business and are negligent in work schedules, human resources, and day to day financials. These entrepreneurs lack the entrepreneurial ability and are not great at business.
Innovation and economic growth depend on being able to produce excellent individuals with the right skills and attitudes to be entrepreneurial in their professional lives. It is critical, therefore, that nations set out to develop entrepreneurial skills, attitudes and behaviours in the school systems at all levels in their educational departments, perhaps for all ages, and as part of a lifelong learning process.
Sadly too, most entrepreneurs fail to anticipate the adverse cash flow which arises from the imbalance between accounts payables and the accounts receivables.
Entrepreneurs see “problems” as “opportunities,” then boldly set out to identify the solutions to those problems. There’s really no hiding or avoiding some of these obstacles that entrepreneurs face along their journey.
Nonetheless, the challenges and changes are not to be dreaded but defeated. Entrepreneurial success is simply a function of the ability of an entrepreneur to identify opportunities in the market, bring about change (or take advantage of change, even the ones that present themselves as challenges) and create value through solutions. A true entrepreneur aimed at success, will move forward, make mistakes, learn from them and grow their company, in spite of all these obstacles.
Every entrepreneur’s journey is different and these challenges may or may not get in their way. There are always lessons to be learned as entrepreneurs venture out into the unknown. Entrepreneurs ought to take note of those lessons as they present themselves and push past them. Keep moving forward. There is no easy path toward becoming successful entrepreneurs. Being aware of the existence of all the aforementioned challenges and many others will no doubt help prepare entrepreneurs and startups for them, in the event that they do arise along the way. Hence the reason research is critical and ongoing for successful entrepreneurs.
Starting a business-a successful one- is serious business!
Note: Cherise Castle-Blugh is the Author of THE TIMELY ENTREPRENEUR & the Key Educator at Downer’s Educational Institute in the field of Business and Entrepreneurship.