Different events have affected new business creation across the world, even preceding the health crisis. A good example has been Chilean entrepreneurial activity that experienced the effects of massive civil protests in response to different socio-economic concerns in October 2019, and then the global health crisis that started in March 2020. In both events, Chilean society experienced confinement with different intensities, duration and restrictions.
The 2020 GEM Chile National Report shows how the COVID-19 pandemic has preliminarily impacted national and regional entrepreneurial activity (the 2020 GEM research cycle captured the first eight months of the pandemic).
Chilean entrepreneurs and ventures still continue to experience the uncertain impact of these events. Professor Maribel Guerrero, head of the GEM Chile Team and a GEM Board member, provided analyses in the following Q and A interview.
How have external events shaped the entrepreneurial perceptions among the Chilean population?
It is well known that the perceptions of the adult population regarding the desire and feasibility of undertaking new business ventures are closely influenced by external events (economic crises, natural disasters, pandemics). When comparing this year’s results to our previous annual research cycle (GEM 2019), we identified a decrease in the perception of the population’s entrepreneurial abilities (from 76% to 72%), entrepreneurial role models (from 71% to 66%), and intentions towards entrepreneurship (from 58% to 51%). These insights are based on opinions from over 9,000 Chilean adults aged 18-64.
What is a plausible explanation for this?
The professional status of the population was slightly affected due to the 2019 social outbreak, but the pandemic has devasted those who had full-time or part-time jobs or were self-employed. In fact, more than 70% of the Chilean population agreed that their family income had drastically decreased due to the pandemic. Likewise, more than 60% knew someone who had closed their business, in contrast to 55% who knew someone who had created a business during the pandemic. Despite this uncertain scenario, results show some signs of optimism as almost 50% of the population still perceived opportunities that could be materialized in the next six months, some of which were even linked to the events stemming from the pandemic.
What did you learn about how the pandemic impacted Chile’s Total early-stage Entrepreneurial Activity (known as TEA, it is GEM’s most well-known index, representing the percentage of the 18-64 population who are either nascent entrepreneurs or owner-manager of a new business)?
In 2019, before the pandemic and social unrest, TEA increased 11-points compared to 2018 (from 26% to 37%) in Chile. More concretely, 73% of this increment was associated with nascent entrepreneurs who were still materializing their business idea of fewer than three months and were not even paying salaries yet. Therefore, nascent entrepreneurs are the most vulnerable entrepreneurial population.
In fact, the 2020 GEM Chile National Report revealed a decrease of 11 percentage points in TEA (from 37% to 26%). This change represents a return to similar indicators before the impact of these events but with a different composition in the entrepreneurial activity indicators. It means a decrease in nascent ventures (from 27% to 20%) and new ventures (from 11% to 6%). Moreover, established ventures that operate in the market for more than 42 months also decreased compared to 2019 (from 11% to 6%).
Does the research highlight trends as to how the pandemic led to these different decreases?
First, the main motivation for entrepreneurship was the difficulty of getting a job due to the scarcity of job options (80%). It represents the entry of new ventures into the market (mostly characterized as solo entrepreneurs).
Second, there is consensus that the main cause of business discontinuity was the pandemic (62%).
Third, 80% of the population involved in the entrepreneurial process recognized that their family income was negatively impacted due to the pandemic.
Fourth, the Chilean business demography’s sectoral composition is mainly focused on the final consumer through trade and service activities. For example, 69% of early-stage ventures and 82% of established business owners have operated in essential sectors (according to the health crisis governmental restrictions).
Lastly, most of the population involved in the entrepreneurial process has perceived the difficulty of carrying out business activities due to the pandemic respect to 2019. The population negatively perceived the government’s efficiency in response to the pandemic (66%).
What are some noteworthy entrepreneurial survival strategies?
The 2020 GEM Chile national report reveals some potential survival strategies implemented by the entrepreneurs in 2020.
Early-stage entrepreneurs (55%) and established business owners (61%) assumed a conservative attitude regarding their growth expectations respect to 2019.
Nascent entrepreneurs (57%), new entrepreneurs (61%), and established entrepreneurs (52%) identified potential business opportunities strongly related to the pandemic.
There was a diversified product/service innovation combined with market orientation (domestic or international). Although more than 70% of the Chilean ventures do not innovate, we observed two trends in those who declared that they innovated in products. In the case of those that innovated and operated in essential sectors, a third of the early-stage entrepreneurs and a fifth of the established entrepreneurs implemented innovation focused on market diversification. In non-essential sectors, one-third of early-stage entrepreneurs adopted a market diversification innovation, but only one-fifth of established entrepreneurs were conservative persuing local market innovation.
Also early-stage entrepreneur used novel medium-high technologies for developing their entrepreneurial activities in both essential and non-essential sectors.
Can you provide further analysis on what the population’s views were on the government response to the pandemic and any takeaways for policymakers?
The report revealed the diagnosis of the entrepreneurial ecosystem based on the opinion of 462 Chilean experts. Using a 1-10 Likert scale, they evaluated the nine pillars: physical infrastructure, government programs, and social norms, despite entrepreneurship education, R&D transfer, and financial support.
According to the Chilean experts, there were three relevant patterns.
The key obstacles for Chilean entrepreneurs was the lack of financial support, the lack of efficiency of government policies and the socio-economic situation due to the pandemic.
There was a strong recognition of entrepreneurs efficient and proactive response to the COVID-19 pandemic (the adaptation/adjustments of the core business, business models, new opportunities and managing home-offices) compared to their non-favorable perception of the government’s response (policies that do not reduce the impact across business sectors or labor market protection).
This underscores the importance of enhancing collaboration among the ecosystems’ agents, as well as reinforcing innovative, digital and technological transformation.
Any final thoughts on lessons from the team’s research?
Over the last 18 months, the entire world has faced multiple challenges, and it will continue in the close/medium future. Entrepreneurs have played a critical role in identifying opportunities for offering responses to multiple societal needs through diverse collective efforts (entrepreneurs, employees, clients, ecosystem agents). More than ever, the post-COVID-19 scenario will require strengthening the collaboration across ecosystems’ agents, supporting the scaling-up process of entrepreneurial and innovative ideas/projects, and fundamentally turning them into sustainable and profitable ventures.
Last July 23rd, with the participation of the Ministry of Economy Lucas Palacios, the GEM Chile report was unveiled by the Director Maribel Guerrero. You can access the video at this link, as well as the complete report and media coverage.