Background
Female entrepreneurship is a phenomenon that has become a significant phenomenon in the 21st century. Unlike in the past, women are increasingly venturing in self-employment ranging from the traditional industries regarded as feminine to the male-dominated industries such as biotechnology and software industries. Compared to the developing countries, developed countries have more robust support systems for women. Policy changes and the recognition of the importance of gender equality in economic development has helped to change the focus on female entrepreneurship. Despite these advancements, there are numerous challenges and opportunities which women encounter in the entrepreneurship journey.
Objective
The following is a comparison of these problems and opportunities that female in self-employment face in both the UK and the US.
Methodology
The study was a qualitative survey whereby 5 entrepreneurs in the United States and 5 from the UK were recruited and interviewed on the supply and demand factors that influenced them to venture in self-employment. In addition, the interviewees were required to describe the factors encouraging and discouraging them in the process.
Finding
Despite the increasing number of female entrepreneurs in the two countries, social factors such as sexism and existing gender gap are still significant impediments to female entrepreneurship. Also, lack of social support systems and limited access to finances discourages many aspiring women entrepreneurs from venturing in self-employment.
Key words: female entrepreneurship, self-employment, economic development.
“Women share with men the need for personal success, even the taste for power, and no longer are we willing to satisfy those needs through the achievements of surrogates, whether husbands, children, or merely role models...”
Background and History
Entrepreneurship has always been considered as a male domain. However, cultural developments and increased equality in developed countries changed the situation and encouraged women to be inspirational entrepreneurs in modern reality. Nowadays the role of female entrepreneurs in economic growth in developed countries is huge and inevitable. All over the world, the role of women is regarded as lower than that of men. Due to this gender gap, women are excluded from fully participating in making key business decisions. In the past, most economists thought of women as the subject to the authority of men. However, whenever provided with the right opportunity, women never hesitated to come forward and be part of the labour force either in professional work or doing the manual craftworks. Currently, female-owned companies are only 30% of the total number of companies in operation globally (Lopez 2011). Scholars such as Alexandre-Lenclair (2014) view gender diversity as a significant factor in stimulating innovation in business. However, male mobility is higher than female one, and, therefore women tend to land more investment opportunities (Momsen 2004).
Historically, in the UK and USA, there was a stereotype that women becoming entrepreneurs were either divorced, widowed, with young children and they become entrepreneurs due to financial necessity and the need of flexible working hours. Their firms were usually small services started with personal savings or loans from friends/family. Normally, those firms would remain slow growing, small, labour intensive operations (Buttner 2004). Even nowadays, some female entrepreneurs still fit the description; there are more females who have wider access to education and therefore more relevant experiences. In the 20th
century, modern female entrepreneurs attempted to expand their field of focus, shifting away from stereotypically traditional female businesses. Between 1977-1982, the highest annual growth rates of female-ran firms occurred in non-traditional, limited areas of women’s business ownership in such industries as agricultural services, forestry, fishing, mining, construction and manufacturing. In those industry divisions, the growth rate of female operated businesses exceeded the growth rate of the industry as a whole (The State of Small Business Report 2015)
The number of women in business has significantly increased. However, it remains relatively low, as there are still factors which could discourage women to start their own firms (Marlow et al. 2008). These factors range from psychological and cognitive factors such as the need for achievement, fulfilment, self-confidence, risk tolerance and recognition of business opportunity (Perez-Perez and Aviles-Hernandez 2016).
Additional social and institutional factors are key determinants of developing female entrepreneurs. For instance, the family influences the willingness to engage in entrepreneurial ventures because apart from serving as an actor that provides the required economic resources, it is also an agent of socialisation which stimulates the entrepreneurial skill among women (Perez-Perez and Aviles-Hernandez 2016). Scholars also suggest that the capital stock is among the social elements that are supportive to female entrepreneurship. However, it is important to review the family and business conciliation as a recurrent theme in women entrepreneurship because of family responsibilities impacts on entrepreneurial activities significantly. Lastly, the means to raise the start-up capital for most female entrepreneurs has been the biggest challenge. In this regard, it is important to consider the impact of external funding on the development of female entrepreneurs. The external financial resources serve either as impellers or barriers to the process. Generally, women tend to have less access to funding sources. According to Buehn and Montenegro (2010b), one of the most important gains made by the developed countries such as US, UK, Germany among other European countries is support on female entrepreneurship. Therefore, one of the ways to understand avatars of women entrepreneurship in the U.S and the U.K is to examine the financial resources from funders at their disposal.
Definitions
The entrepreneurial process is to be seen as a sequence of variation, selection and retention embedded in the history and culture of the society (Baum and Rowley 2002). Depending on the focus of the research undertaken, numerous definitions of entrepreneurship are used in the literature. There is no unique definition of entrepreneurship. Hence, entrepreneurship scholars are yet to reach a common definition of the concept of entrepreneurship (Wiklund 2011).
For example, World Bank defines entrepreneurship as “the activities of an individual or a group of individuals aimed at initiating economic activities in the formal sector under a legal form of business” (Klapper et al. 2008). Whereas, Professor Howard Stevenson defines entrepreneurship as the pursuit of opportunity beyond resources controlled, where:
- “Pursuit” implies a singular, relentless focus.
- “Opportunity” implies an offering that is novel in one or more of four ways: pioneering a truly innovative product, devising a new business model, creating a better/cheaper version of an existing product, targeting an existing product to new sets of customers.
- “Beyond resources controlled” implies resources constraints: at a new venture outset, its founders control only their own human, social and financial capital. (Tisenmann 2013)
Entrepreneurship is the process of creating value by bringing together a combination of resources to exploit available opportunities. Entrepreneurship is also defined as any attempt at new business or venture creation, such as self-employment, a new business organisation, or the expansion of an existing business, by an individual, or an established business (Bednarzik 2000). Wennekers and Thurik (1999) give a more 'Schumpeterian' definition in which they focus on the perception of new economic opportunities and the subsequent introduction of new ideas in the market.
Generally, entrepreneurship is considered a critical factor for future economic growth and job creation in the new competitive environment of the 21st
century. Nowadays creation of small businesses is seen not only as a vehicle for entrepreneurship but also as a contribution to employment, social/political stability and innovative/competitive power (Thurik and Wennekeers 2004).
Definitions of female entrepreneurship also differ across geographical contexts, thus making direct comparisons between countries difficult. For instance, in the United Kingdom, a women-owned business is ‘one that is either wholly or majority owned by one or more women ( Marlow 2008) Whilst in the USA a ‘woman-owned business is one in which the principal owner or the majority of shareholders are female, and the female owners/shareholders own at least 51% of the business.
Those two definitions are very similar. However, they fail to take into account the composite contribution of females to business ownership, which is particularly significant for the family business. Hence, Center for Women’s Business Research in the USA acknowledges the difference between women-led and women-owned businesses in an attempt to take into the account these two ventures equally owned by male and female business partners including copreneurial ventures.
Female entrepreneurship in the 21st century
Not only do women contribute to economic growth and employment creation by becoming entrepreneurs, but they also make a contribution to the diversity of entrepreneurship in the economic process (Verheul and Thurik 2001). According to the 2005 Workplace Diversity Practices Survey from the Society of Human Resource Management (SHRM) diversity can reduce cost and improve profits. Responses from 400 human resources professionals indicate that 78% reported that diversity reduced costs and 74% stated that diversity improved profits. Over the years, the OECD data reveals a substantial difference in the levels of self-employment across the world (Parker & Robson 2004).
Due to women’s potential to contribute to aggregate economic activity, women have been the focus of regional, national and international economic development agencies; with women considered to be an untapped pool of entrepreneurial potential and talent (Marlow et al. 2008). For instance, UK and USA are two major developed economies attempting to achieve growth in the sector of female entrepreneurship at the moment.
Since definitions of female entrepreneurship vary across geographical contexts, direct comparisons are difficult to make. However, there are academic papers and reports which attempt to make the comparison between UK and USA, relying on the general business environment and economic statistics. According to Prowess (2016) statistics, there is an increase of around 300,000 self-employed women in the UK since the economic downturn.
According to Dell’s report (2015), USA is on the 1st place, and the UK is on the 5th place among other countries assessed for the support of high-impact women’s entrepreneurship. As well as analysing the overall business environment within the country, the report investigates several gender-focused factors, including the level of access to education, banking, training and the internet for females. Out of the 3.7 million SMEs in the UK only 952,750 are wholly owned by women (26%) (Carter et al., 2001) 27% of the self-employed adults are women. 44% of the economically active population in the UK are women (DTI 2004, p.57)
Image 1 demonstrated the TEA (total entrepreneurship activity) rates for females and males in 74 countries, divided into three economic development levels: factor/factor efficiency-driven economies, efficiency and efficiency innovation-driven economies and innovation-driven economies. Image 1 shows a plot of female versus male TEA rates. This graph demonstrates that only the five aforementioned economies fall above the line indicating a 1:1 female-to-male TEA ratio. Whereas, a majority of others fall below that line, with some falling below the 1:2 ratio line, where women start businesses at half or less than half the level of men. For instance, USA shows the female TEA of about 10% and the UK shows a lower female TEA which is about 6.5 %.
Conceptual Framework
A wide range of determinants explains the number of entrepreneurs, including economic and social factors. The determinants of entrepreneurship cannot be confined to one discipline. For instance, psychology studies focused on motives and character traits of potential entrepreneurs, sociological studies focused on the general background of entrepreneurs, economic studies focused on the impact of the economic climate, including scarcity and opportunity costs and technological developments on entrepreneurial activity and the demographic perspective focuses mostly on the impact of the demographic composition on entrepreneurship. The determinants of entrepreneurship can also be studied according to the level of analysis. Thus, a distinction can be made between the micro, meso and macro level of entrepreneurship. Verheul et al. (2002) proposed the eclectic theory of entrepreneurship, which provides categories of macro and micro factors that act as influential factors for people when deciding whether to become an entrepreneur or not.
Eclectic theory of entrepreneurship provides an integrated framework, to provide a clearer understanding of the different role that entrepreneurship plays in different countries in different time periods. This framework is designed to guide future empirical research in this area and to provide insights for those attempting to promote different types of entrepreneurship.
Explanation of the Diagram
Entrepreneurship is the study of sources of opportunities, their identification and exploitation based on prior education and norms of the society.
This model of entrepreneurship identifies the historically and culturally determined framework conditions affecting entrepreneurship and the idiosyncratic prior experiences of enterprising individuals and potentially enterprising individuals (Shane and Venkataraman 2000). The core categories of the theory are demand side, supply side, individual decision making, actual and equilibrium rate, government intervention and culture.
The demand-side entrepreneurial opportunities are those created by the industrial structure and diversity of demand, which are normally determined by the economic and technological development of the country whereas, the supply-side consists of the potential entrepreneurs. Hence, the rate of entrepreneurship can be determined by the income of the population and characteristics of the population within the specific country.
Thus, the choice of the individual whether to become an entrepreneur or not will be based on the availability of the opportunities, resources and individual characteristics. The choice is then made on the basis of the specific risk-reward profile in the process of analysing alternative types of employment. For instance, whether to choose self-employment, wage job or stay unemployed. Those choices would materialise as entry and exit rates of entrepreneurship in the country.
Entry and exit rates also influence someone's risk-reward profile of entrepreneurship due to the dynamics of entry and exit play a significant role in the attractiveness of self-employment, independent of existing opportunities and individual characteristics. Thus, while seeing role models entering or exiting self-employment, individuals could be lead into doing the same without considering the possible outcomes and the financial or for instance, intellectual resources/capital required to start a profitable business.
At any time, the level of entrepreneurship in the country does not always equal the equilibrium level (E* on Figure 1) — a long-term equilibrium rate depend on the demand-side forces. However, ‘disequilibrium' (E–E* on Figure 1) can be achieved through market forces or through the quality of governance that leads to changes in environmental conditions and therefore, in individual characteristics. For instance, effective governance can make starting and running a business simpler by making transparent registration procedures and other bureaucratic processes, and therefore modify business start-up opportunities (arrow G1 on Figure 1); policies can modify the supply of individuals willing to become entrepreneurs (arrow G2 on Figure 1); education, promoting the availability of capital, provision of information through availability of consulting and so on can dramatically change individual characteristics and resources (arrow G3 on Figure 1); the educational system and the media can influence individuals' preferences (arrow G4 on Figure 1); and fiscal incentives, subsidies, labor market regulation and bankruptcy legislation influence the net rewards and the risks of the various occupational opportunities (arrow G5 on Figure 1).
According to Sarasvathy (2008), entrepreneurship is conducted by and for people. Thus, it is built in the societal culture (shaded area ‘C’ on Figure 1). A society’s attitude towards female entrepreneurship and general opinion of the society on female entrepreneurship can influence individual preferences for becoming entrepreneurs. Because economic opportunities have an influence on individual resources and impact preferences, there is a relationship between the demand and the supply sides. Therefore, a risk-reward profile which is a significant part of the culture, is affected by opportunities and resources, abilities and preferences in the following way: economic opportunities endow people with certain resources and abilities, which, therefore, affect their risk-taking behaviours.
Generally, ETE provides number of factors that influence entrepreneurship at a macro and the micro levels. Hence, this framework can be used for the analyses of the factors encouraging and discouraging female entrepreneurship. However, it is proven that this framework has been developed only conceptually and needs empirical validation (Turkina et al. 2013).
Comparison of Factors Influencing Female Entrepreneurs in the UK and USA
Demand-Side Factors
Demand factors include financial development, economic growth, international economic integration and innovation (Haines 2006). Countries with more sophisticated financial system provide more economic and innovative opportunities to potential entrepreneurs.
The UK promotes innovation, and therefore, the British economic development is sophisticated thus providing an appropriate business environment for entrepreneurs. For instance, in the UK, the GDP is $2648 billion as per December 2016 with an annual GDP growth rate of 1.5% as per December 2017 Trading Economics report. The British government invested £6 billion into UK Research and Innovation organisation to keep the UK as a world leader in research and innovation. In the UK, women in the South East are more likely to start their own businesses compared to those in the North East (Chapman 2017). Image 2 demonstrates innovation rate in the UK, which was 27.06 in 2017 and is likely to grow further in 2018.
However, according to Estrin and Mickiewicz (2011), in countries with large government size (ratio of government expense to GDP), statistically women are less likely to become entrepreneurs. The reason is because where there are fewer government-provided services, such as those involving education and health, women will be more compelled to seek income sources due to the necessity of earning money for supporting their families. Alternatively, where there are high taxes, high levels of economic development and government has enough funds to provide services, women often take on domestic responsibilities or unable to go into entrepreneurship due to the high tax rates. Thus, countries with high levels of economic development are unlikely to provide enough demand for the female entrepreneurs. For example, in the UK government spending to GDP is 42.1%, meaning that some women in the UK do not feel the necessity to go into entrepreneurship and choose domestic responsibilities or salary work instead, as they are sure that the government will provide the required support if that would be needed. Moreover, nearly 300 entrepreneurs representing companies such as Zoopla and Yo! Sushi have thrown their votes for Britain to stay in the EU, warning that the economic shock of BREXIT would be "hugely damaging" for male and female-owned entrepreneurial businesses. Leaving European Union would mean that the start-ups would lose the ability to do business within Europe's single market of nearly 5000 million customers with one set of regulations across 28 countries and also the ability to employ brightest people across Europe. Thus, BREXIT will lead to economic uncertainty which will act as a demotivation for potential entrepreneurs.
In the USA GDP is $18624 billion with an annual GDP growth of 2.5% (Trading Economics 2017). Both of the indicators demonstrate better economic development and growth than in the UK, hence the level of economic opportunities in the USA would be better and more attractive environment for females to start their business.
In an effort to promote innovation and therefore entrepreneurship in the USA, the Commerce Department’s Economic Development Administration (EDA) launched a new $10 million funding opportunity for the Regional Innovation Strategies (RIS) program which provides grants for state/local governments and non-profit universities to promote building capacity for entrepreneurs seeking to turn ideas into job-creating companies and to support start-ups to attract the required capital (US Census Bureau).
Innovation rate in the USA is 35.93 as shown on the Image 7, which is also higher than in the UK.
Government spending is at 34% in the USA, meaning that the argument of Estrin and Mickiewicz (2011) would be less relevant for this country. However, the cluster of regulations and policies that are determined by the government significantly influence the number of people venturing in entrepreneurship. The most significant government regulations in the United States include welfare and tax systems which affect entrepreneurial entry in terms of their the direct impact they have on the expected returns as well as their opportunity cost(Estrin & Mickiewicz 2011). In addition, the marginal levels of taxes weaken the incentives reducing the potential gains from opportunity-driven entrepreneurship. On the other hand, higher levels of welfare support provide women with alternative sources of income. With a higher alternative wage, there is an overall reduction in incentives for entrepreneurship.
Economic integration of the USA could be less attractive for female entrepreneurs willing to work with foreign countries in Europe. In Europe, entrepreneurship is less attractive especially among women because of inadequate networks for business purposes, access to training and information. Also, it is difficult for foreigners to access financing when operating in a different country. Most countries in the OECD indicate a major gender gap in terms of access to training and start-up capital. The United States is not an exception. Another factor usually considered by the women entrepreneurs in the United States is the potential rewards from an enterprise. In the US, the reward for women is 43% less compared to men.
Supply-Side Factors
Those indicators would be GDP per capita and employment level (financial resources), social security and human development index (health and education). Those factors reflect abilities and social resources of potential entrepreneurs.
In the UK, GDP per capita is $41603 as at December 2016, the employment rate is 75.3% (October, 2017) and the human development index is 0.909 as at January 2018. In countries with high employment rates and high-income rate, there tend to be more equal education opportunities, better access to healthcare services and better developed social security programs (Rudra 2002). Therefore, in the UK there are a lot of female individuals who are willing and feel encouraged to become entrepreneurs, as men and women have similar access to education and social resources and inequality levels are low. Women wiling to venture into entrepreneurship consider the fiscal freedom and direct taxes before dully committing into the idea (Baker, Aldrich and Liou 1997). At the macro level a high rate of unemployment can negatively impact the level of female entrepreneurship through a decrease in the number of available business opportunities, induced by a depressed economy, but at the micro level, the fear of unemployment is likely to have a positive effect on the level of entrepreneurship through reducing the opportunity costs of self-employment. For example, UK encourages female to become entrepreneurs as the country actively provides the universal access to education for women (100% of the female population has access to secondary education) and providing SME training programs that are accessible, affordable and culturally appropriate for women to participate. Although the British men are twice as likely to be entrepreneurs as women, the present statistics indicate a changing trend whereby more women are embracing self-employment (Bounds 2017). Institutional barriers and policies that are not flexible enough are also major stumbling blocks for women venturing in entrepreneurship (OECD 2014).
In 2017 female to male TEA ration in the UK was 1.04. and female to male opportunity- driven TEA ratio was 0.46.
Therefore, in the UK females have equal access to social resources as males, and there should be many individuals who have the required knowledge and experience to potentially become entrepreneurs.
In the USA GDP per capita is $52195 (December 2016) , the employment rate is 60.1% (January 2018), and human development index (HDI) is 0.92 (January 2018). Whereas GDP per capita and HDI are higher in the USA, the employment rate is higher in the UK. There is no unique explanation of the effect of the unemployment rate on entrepreneurship. For example, instead of low employment rates being a discouraging factor, for some females, it could be difficult to find a job, and opening own firm would be an easier choice. Additionally, the lower employment rate would mean that there are many candidates to choose from for a female after starting her own firm when she is ready to employ, hence lots of resources.
Female to male TEA ratio is 0.64 and female to male opportunity driven ratio is 1.04.
Quality of Governance
There are few indicators of quality. It could be measured by business-related ‘ease of doing business’ indicator and general governance indicators (related to the available policies of the support for female entrepreneurs or the level of democracy. Generally, this factor could be measured by the number and usefulness of programs available to support female entrepreneurs. According to PWC (2017) report, government policies have a significant impact on the economic development and investments. For instance, Brexit is among the current issues that are holding back business investment in the country.
There is a women entrepreneurs'' organisation in the UK, and one of the most famous organisation of this kind in the world is the British Association of Women Entrepreneurs (BAWE). This is a non-profit organisation whose goal is to gather women business owners regardless of the size/profits of their businesses. BAWE provides the connection of female entrepreneurs with consultations and training.
During last seven years, the UK governments has introduced a range of policy initiatives designed to encourage more women to become entrepreneurs. For example, during Global Entrepreneurship Week, the government announced £150,000 to fund ‘Meet a Mentor’ events which will link up female-led businesses, at both the start-up phase and at the point when they are exploring business opportunities, with mentors. Moreover, the Business is GREAT website is the single place to go for help and the Business Support Tool is continually being expanded and developed with users. Recently, on a specific section for women entrepreneurs on the website was developed. New policies were introduced to achieve similar participation rates as those in the USA, where women own nearly 50% of the stock of the business. (OECD, 2014) In the UK, there are now almost 1.5 million women who are self-employed, which represents an increase of around 300000 since before the economic downturn (2008-2009) (Prowess 2016). But more can be done to make business support accessible for women. However, according to the Burt Report, released in February 2015 and written by UK Member of Parliament and Ambassador for Women’s Enterprise Lorely Burt, outlines how design flaws in current business-focused services in the UK act as barriers to women (Burt 2015). For example, Burt uncovers a number of instances of ‘unconscious bias' that result in less representation, less visibility and less overall integration of women into the messaging and images portrayed on business support websites. Even though there are plenty of support programs for female entrepreneurs in the United Kingdom, there is still an issue with access to credit and financial services. Fay and Williams (1993) initially speculated about the impact of hidden bias such as gender stereotype, which place women in an unfavourable position when seeking access to financing. While in the UK formal sources of financing are challenging for men and women, females also face extra financing constraints, and that is a discouraging factor. For example, there is lack of sufficient collateral security to meet the lending requirements of banks and lack of experience in approaching potential lenders with bankable project proposals.
USA was well ahead of the UK when creating policies for supporting female entrepreneurship. For example, in 1975, a number of women entrepreneurs formed the National 9 Association of Women Business Owners (NAWBO). Because of the association’s successful start, in 1979 President Carter crea
