Entrepreneurship is flourishing in the Middle East, a London Business School survey of regional executives has revealed.
The survey of nearly 500 regional executives found that the Middle East is seen as a growing market for entrepreneurship, with more than two thirds (71.4%) of respondents describing the sector growth as ‘steady’, ‘fast’ or ‘very fast’.
Executives in the United Arab Emirates (UAE) were most emphatic about a growth spurt, scoring well above average at 81.5%.
Andrew Scott, Professor of Economics, London Business School, says that as the region becomes more prosperous, a healthy entrepreneurial sector will become even more important:
“Entrepreneurs, not established firms, tend to be the most important source of innovation. With the recent decline in oil prices, economic growth will come from different sectors and it is important that the private sector takes over the momentum from the government. Entrepreneurship can play an important role in this.”
And the findings suggest that people recognise this. Nearly a half (45.4%) of the regional executives who participated in the survey, said they have considered setting up their own business. More than one third (35.8%) said that they have already started one or more ventures and nearly a half (45.6%) said they felt ‘confident’ about starting a business in the region.
Maintaining this confidence is key for fostering long-term economic growth in the Middle East, according to John Mullins, Associate Professor of Management Practice in Marketing and Entrepreneurship, London Business School, and author of The New Business Road Test (2013) and The Customer-Funded Business (2014).
“Starting a new business is not for the faint of heart, as enormous uncertainty surrounds any new venture, and the probability of success is daunting,” said Dr Mullins. “However, it is entrepreneurs and their fast-growing companies who will create nearly all of the region’s new jobs going forward, and it is entrepreneurs who will make available goods and services found elsewhere that are not yet available here.”
Despite the confidence in growth, 66.7% of respondents from across the region believe that there is room for improvement. 56.3% believe that SMEs in their country could be doing better, if given more support.
The survey identified a number of challenges that continue to impact SME growth, including excessive or inappropriate regulatory or governmental policies, few sustainable SME banking products and an SME management skills gap.
Professor Scott says: “While it is true that entrepreneurs need to generate their own passion to succeed, we know that so many of the common mistakes that entrepreneurs make in SMEs could be avoided. This is why business schools are increasingly incorporating entrepreneurship courses amongst their general management offerings. It may be true that entrepreneurs can’t be made in a business school but you can certainly help them become more successful.”
When it comes to new business financing, venture capital is currently seen as the most successful funding model across the region (36.5%). Looking to the future, executives also believe that more private investor (e.g. ‘angel’) funding would be the most effective measure in supporting new businesses.
According to Dr Mullins however, budding entrepreneurs should consider alternative options for their first investment:
“There is a widely held assumption in the Middle East and elsewhere that a venture capital firm should be every aspiring entrepreneur’s first port of call. ‘We need more angel investors,’ is an equally familiar cry around the world, just as it is in the Middle East.
“But actually, that is not true. The vast majority of fast-growing businesses around the world never take any venture capital. So where does their money come from? It comes from the same source that Bill Gates and Paul Allen used to start Microsoft – and Michael Dell, too – their customers. There are intelligent ways to secure customer funding, and it is vastly cheaper capital too.”
Nearly 500 members of the London Business School community, including alumni, Executive Education past participants, Executive MBAs and the School’s Middle East Club, participated in the survey, sharing their views on entrepreneurship, the current state of the Middle East’s SME sector and its future trajectory.