Executive Summary – GEM Puerto Rico 2014
This report presents Puerto Rico’s results in the Global Entrepreneurship Monitor (GEM) 2014 study. The GEM is the largest longitudinal study on entrepreneurial activity worldwide. This academic project, which began in 1999, had the participation of 73 countries in the 2014 cycle. Puerto Rico also participated in the years 2005, 2007 and 2013, being 2014 the second year of consecutive participation. The report presents a large amount of data that allows the analysis of Puerto Rico’s entrepreneurial activity in its different phases as well as the population’s perceptions and attitudes towards the entrepreneurs and the creation and development of enterprises. It also shows the trend with respect to 2013 local data and the comparisons with countries in different geographical regions and different levels of economic development.
The GEM methodology consists of two surveys. The first one is the Adult Population Survey (APS) made to a representative probabilistic sample of a minimum of 2,000 adults from 18 to 64 years of age. The data was collected face to face in the island, divided into six geographical regions, using a sample design approved by the GEM international team. The second survey of the study is the National Experts Survey (NES), made to national experts in entrepreneurial factors in each country. This survey is done to a non- probabilistic sample of at least 36 national experts distributed among nine environmental determinants of entrepreneurial activity. Through this survey, researchers obtain deep opinions regarding the factors that positively and negatively impact entrepreneurship in each economy.
In Puerto Rico, 49 per cent of the population surveyed believe that they have the knowledge and skills needed to start a business. However, only 25 percent considers that there are good opportunities to start a business, a low percentage if compared to the results of other countries (39 per cent in innovation-driven economies and 49 per cent in the Latin America and the Caribbean region). Among the group that perceives good opportunities, only 24 percent identifies fear of failure as an obstacle for startup. Entrepreneurship is considered as a good career choice only by 19 percent of the population. Both, in 2013 and 2014, Puerto Rico obtained the lowest percentage of all participating countries in this question. Despite this perception, 51 per cent of the population surveyed believes that successful entrepreneurs enjoy prestige in the Puerto Rican society and 73 percent think that the media pay attention to entrepreneurial initiatives; 12 percent of the population answered that they intend to create a venture in the next 3 years.
GEM adopts a broad definition of entrepreneurial activity. The initiatives of formal and informal enterprises in its different stages are included. Startups that generate own employment as well as those developed under a diversity of organizational structures are considered. Expanding an established business either by an individual, a group or a company is also considered entrepreneurial activity by GEM.
The rate of total early- stage entrepreneurial activity (TEA), one of the most cited measures of the GEM, is calculated from the adult population survey. This includes both, nascent entrepreneurs (those in the process of starting a business or who have a new business which still do not pay wages) and new entrepreneurs, defined as those running new businesses less than 3 ½ years old.
The Puerto Rico TEA in 2014 is 10.0 percent, which represents an increase regarding the 8.3 percent of 2013. This value places the country in the middle of the innovation-driven economies group over the European region (average of 7.8%) but lower than the United States (13.8%) and Canada (13.0%).
In the context of the Latin America and the Caribbean region, this index positions Puerto Rico 17 of the 19 countries in the region. While the Puerto Rico TEA exceeded the average TEA in the European region, what is worrying about our outcome is the distribution among the components of this indicator. Among the TEA components, 8.8 percent is nascent entrepreneurial activity and 1.3 percent is new entrepreneurial activity. On the other hand, in 2014 the discontinuation rate (3.6%) is almost three times that of established business (1.3%). This proportion has deteriorated compared with the previous year when the rate of established business (2.0%) was almost the same as the discontinuation rate (1.8%).
The weighted average age of entrepreneurs in early-stage entrepreneurial activity in Puerto Rico is 36.7 years, while for established entrepreneurs is 43.6 years. In 2014 Puerto Rico joins the trend of Latin America and the Caribbean and North America regions, where the category of 25 to 34 years is the most active in new ventures (15.9%), in contrast to the previous year where the higher percentage of entrepreneurs in early-stage entrepreneurial activity was located in the 35 to 44 age category. On the other hand, there has been an increase in the percentage of women active in the TEA, from 6 per cent in 2013 to 9 per cent in 2014. In terms of the education level of the persons who carry out early-stage entrepreneurial activity, in 2014 the trend of the previous year is repeated: the higher the education level, the greater the involvement in early-stage entrepreneurial activity.
Also found in 2013 and 2014, there are more entrepreneurs in early-stage entrepreneurial activity among the group of respondents with higher annual income than in lower-income groups. Regarding the type of venture, most of those who compose the TEA perceive their ventures as an activity of self-employment or modest creation of jobs (between 1 and 5). Only 11.2 per cent expect to create more than 5 jobs, a figure lower than that obtained in 2013 (15.3%). However, unlike 2013, in the 2014 survey, 2.4 percent of persons in early-stage entrepreneurial activity expect to create 20 jobs or more in the next five years. This contrasts with the results of Latin America and the Caribbean region where 8.5 percent expect to create at least 20 jobs in the next five years. In the North America region this figure exceeds 20 percent. On the other hand, the 39.6 percent of respondents in early-stage entrepreneurial activity have or expect to have some level of exports. Although this figure is higher than the average obtained in Latin America and the Caribbean countries (36.4%), is well below that obtained in North America (83.6%) and other innovation-driven economies.
The national experts surveyed in 2014 pointed out the same factors that were already mentioned in 2013 as the main obstacles for entrepreneurship development in Puerto Rico. The ecosystem factors with the lowest average rating given by the experts are education and training in primary and secondary level (1.7, on a Likert scale of 1 to 5), government policies: bureaucracy, taxes, regulations (1.8) and finance availability for business startups (2.0). It is interesting that in both years the only averages over the neutral value of 3 and therefore the entrepreneurial ecosystem factors better appreciated by experts, are access to physical infrastructure (3.3) and education and training at postsecondary level (3.1).
The information presented in this report provides a wide perspective and points at critical areas about which to reflect carefully and develop action plans that meet our particular reality to promote successful local entrepreneurial initiatives and Puerto Rico’s economic development.
- Marinés Aponte, PhD., Principal Investigator, Departament of Finance, UPR Río Piedras
- Marta Álvarez, PhD., Co- Investigator, Institute of Statistics, UPR Río Piedras
- Manuel Lobato, Ph.D., Co-Investigator, Departament of Finance, UPR Río Piedras