Inside the mind of risk takers: Indians vs chinese

Inside the mind of risk takers: Indians vs chinese

The past few years have seen no shortage of commentary about the comparative economic environments in China and India, where growth and the rise of enterprising classes have gone hand in hand. Yet, we have little data to help us understand how entrepreneurs in these countries think, and what motivates their decisions and actions.

A new survey of at least 4,000 entrepreneurs, business managers and aspiring entrepreneurs, conducted by YouGov and released last week by the Legatum Institute, sheds light on the countries’ respective enterprising classes—and raises some questions for policymakers and investors.

Entrepreneurs in both countries are bullish. Nearly half of the respondents believe their societies are more welcoming of entrepreneurial activity today than 10 years ago, and only a quarter in India and one-third in China believe the global financial crisis has seriously hampered the prospects for new businesses. The vast majority believe their lives will improve dramatically in the next five years.

But the survey shows that two different styles of entrepreneurship have emerged. The differences start with why entrepreneurs launch businesses. Asked about their main motivation, the overwhelming majority of Indian entrepreneurs name “being my own boss", while the most popular response in China is earning more money. Indian entrepreneurs more closely resemble US entrepreneurs, who are more likely to cite “owning my own company" than “building my wealth" as the main reason they launched a business, according to a 2009 Kauffman foundation study.

When asked what other factors inspire them to start businesses, nearly half of Chinese entrepreneurs give answers related to the state’s efforts to promote and manage enterprise. Compared with just 9% in India, 23% of Chinese entrepreneurs say that what they learnt in school or at university prompted their decision. This presumably reflects the government’s strategy of using universities to promote entrepreneurship. Chinese business owners cite pro-business actions by the government or pro-business messages in the media (which in China are state-controlled) at three times the rate of their Indian peers.

Twenty-one per cent of Indian entrepreneurs cite family expectations as the source of their entrepreneurship, compared with 9% of Chinese. Twenty-seven per cent of Indian entrepreneurs cite the inspiration they glean from knowing another entrepreneur, compared with 18% of Chinese.

The differences in inspiration and motivation manifest themselves in many ways. The relational Indian model of business start-ups is evident in enterprise financing, where 49% of business owners rely on family resources to start their enterprise, compared with 25% in China. Chinese entrepreneurs are much more dependent on banks, with 49% taking out loans compared with 27% in India. Indian entrepreneurs use conventional financing through debt and investors at about half the rate of their Chinese peers. This raises interesting questions. Are Indian entrepreneurs more careful about working out the kinks in their business models before they start because they know a default will hurt their friends and family instead of a faceless bank? And are Chinese banks as good as Indian families at evaluating the business merits of an entrepreneur’s idea before extending credit?

In listing factors important for starting a business, Indian entrepreneurs place nearly as much value on personal qualities, such as creativity and the ability to take risks in the face of adversity, as they do on access to finance. Access to information and knowledge, for instance, is more important to Chinese entrepreneurs than being creative. This suggests that Chinese entrepreneurs believe business success depends on external market conditions that can be known and manipulated, whereas Indian entrepreneurs regard success as the result of their internal ability to adapt to changing conditions.

There are also significant differences in how entrepreneurs see themselves relating to their policy environments. In India, 81% of business owners say that jugaad, the ability to improvise and find ways around prohibitive rules and institutions, is important to business success. In China, 93% of business owners say guanxi, the networks and relationships (primarily with the state) necessary to succeed in business, are important to their own success. Generally, enterprising individuals in India believe they succeed in spite of the state, while in China they think they succeed through their connections to it.

So far, our findings suggest entrepreneurship in India is marked by a kind of sustainability that is less evident in China. Because India’s entrepreneurs have succeeded amid dysfunctional government and financial institutions by developing a kind of independent and experimental ingenuity, it stands to reason that the enterprising class would prosper even more, were India to reduce barriers to business and clean up corruption. In China, it is unclear what will happen if state efforts are no longer sufficient to entice and groom the entrepreneurs its economy needs.

The Wall Street Journal

Ryan Streeter is a senior fellow at the Legatum Institute in London

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