The impact of cultural differences on entrepreneurship — Neal Hartman

MIT Sloan Senior Lecturer Neal Hartman

MIT Sloan Sr. Lecturer Neal Hartman

I was recently invited to give a talk for Knowledge Stream in Russia about entrepreneurship and cross-cultural issues. This is similar to a Ted Talk, but I spoke via videoconference from Cambridge to a live audience in Moscow. There is growing interest in entrepreneurship in Russia, especially among younger people, but it’s still a very new and emerging area. In fact, Russia is one of the countries with the lowest entrepreneurial intention rates. The request for a talk on this topic was encouraging.

I began my talk highlighting some of the trends worldwide in entrepreneurship. I analyzed many studies to identify these trends, but one of the most useful was conducted by the Global Entrepreneurship Monitor. According to GEM, we’ve seen a big increase in early-stage activity since 2011. In 16 developing economies, it has increased about 25%. Three developing countries in particular saw above average rates of growth in terms of new startups: Argentina, Chile and China.

Intent to start a business is highest in emerging economies. People in those areas are most likely to see opportunities and believe in their ability to start a business. They hold entrepreneurship in high regard. Expectations to start a business are also higher in certain developing economies like China, Chile and Brazil. Interestingly, those measures tend to fall as countries rise in economic development.

As for more mature economies, 20 of those countries have seen a 22% increase in early-stage activity. Of those economies, the U.S. and Australia have shown the most substantial increases.

Why are some parts of the world more active in entrepreneurship than others? A lot of it has to do with the culture and whether it encourages risk-taking and innovation. For instance, if a startup fails in the U.S. or Australia, the question is: What did you learn and what will you do next? That’s in stark contrast to many European countries where the entrepreneur is labeled a failure when a startup doesn’t succeed.

Consequently, when you look at the younger population of 18 to 25 year olds, there is a lower percentage of people in Europe involved in entrepreneurial activities compared to Latin America, Asia, Africa and North America. Overall, Europe has the most work to do when it comes to developing a creative spirit.

Here are a few more trends: Of the 400-500 million entrepreneurs in the world (the number depends on the study), about 163 million early-stage entrepreneurs are women and about 165 million are young entrepreneurs (18-25 years old).

With approximately 18 million early-stage entrepreneurs selling 25% of their goods, products or services on a global basis, cross-cultural communication is becoming more important. This is a critical skill to develop, as there are significant differences among cultures that can impact a startup.

For example, some cultures place a higher value on individual performance versus team performance. Another cultural aspect to pay attention to is how cultures view success. Is it profitability, employee morale or market share? Also, how do they view change? Is it continuous and ongoing or a negative?  And what about relationships? In some cultures like China, it’s expected that you develop a relationship with someone before you get down to business. In other countries like the U.S., you can meet someone and immediately discuss business.

My talk was called “1000 and 1 Entrepreneur Cultures.” This is because there really are countless cultural differences among not just countries, but also organizations. Entrepreneurs who pay attention to these differences, understand their environment, and learn how to communicate across cultures can greatly increase their chances of success.

Neal Hartman is a senior lecturer who focuses on organizational communication issues. Click here to view his Knowledge Stream presentation.

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