Swiss start-up ecosystem climbs the ranks to no. 2 worldwide

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Ritah Ayebare Nyakato / Stefan Kyora

16.11.2016
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The 2017 Global Entrepreneurship Index has been released. The major surprise this year is the movement of Switzerland from eighth place to second place, making it the best in Europe. The reasons for the climb: very strong scores in product innovation, process innovation and high percentage of businesses that intend to employ at least ten people and plan to grow more than 50 percent in five years.

The 2017 Global Entrepreneurship Index (GEI), presented during the Global Entrepreneurship Week celebration in over 165 countries, provides key information for policymakers and government leaders worldwide to strengthen their digital ecosystems and promote high-growth, high-impact entrepreneurship. The authors estimate that improving conditions to help entrepreneurs create new companies could add $22 trillion to the global economy.

The GEI measures a country’s entrepreneurial ecosystem by combining individual data such as opportunity recognition, startup skills and risk acceptance, with institutional measures, including urbanization, education and economic freedom. These measurements help distinguish self-employment and replicative entrepreneurship from the innovative, productive and rapidly growing entrepreneurial ventures that drive real economic growth. This year, it included four new components of the digital entrepreneurship ecosystem: Digital Citizenship, Digital Governance, Digital Marketplace and Digital Business.

The top of the rankings were dominated by countries in the innovation-driven stage of development. The United States topped the rankings again this year, with a GEI score of 83.4 followed by (in order): Switzerland (78.0), Canada (75.6), Sweden (75.5), Denmark (74.1), Iceland (73.5), Australia (72.5), the United Kingdom (71.3), Ireland (71.0) and Netherlands (67.8).

Significant improvement in Switzerland
One of the major surprises this year was the rise of Switzerland to second place, primarily driven by the aspiration index with a total score of 82.5 (Last year the country scored 71) Entrepreneurial aspiration refers to the distinctive, qualitative, strategy-related nature of entrepreneurial activity. Aspiration is comprised of five pillars, namely, the individual and institutional factors of product and process innovation, high growth expectations, internationalization and the availability of risk financing. Strong scores for Switzerland were particularly gained from three of the five pillar values of aspiration;

  1. 0.611 in high-growth firms – a combined measure of: the percentage of high-growth businesses that intend to employ at least ten people and plan to grow more than 50 percent in five years, the availability of venture capital and business strategy sophistication
  2. 0.971 in product innovation – which captures the tendency of entrepreneurial firms to create new products weighted by the technology transfer capacity of a country
  3. 0.877 in 0.971 in process innovation – a pillar that captures the use of new technologies by start-ups combined with the Gross Domestic Expenditure on Research and Development (GERD) and the potential of a country to conduct applied research.

Switzerland also ranks third in abilities with a score of 81.9 (2016:68.9). This index includes some important characteristics of the entrepreneur that determine the extent to which new startups will have potential for growth. These are; motivation based on opportunity as opposed to necessity, the potential technology-intensity of the startup, the entrepreneur’s level of education, the level of competition and digital startup capabilities. These individual factors coincide with the proper institutional factors of taxation and the efficiency of government operation, technology adsorption capability, the freedom of the labour market and the extent of staff training, and the dominance of powerful business groups as well as the effectiveness of antimonopoly regulation (Regulation).

The country further ranks eleventh in attitude with a total score of 69.5 (2016:63.4), as it is more interested in high-impact entrepreneurship than in replicative activities. Attitude reflects the people’s attitudes toward entrepreneurship. It involves five pillars including, opportunity recognition, startup skills, risk perception, networking, and cultural supports of entrepreneurs. Institutional embedding’s expressed as the property rights and economic freedom, the quality of the education, the riskiness of the country, the connectivity potential, and the prevalence of corruption.

Switzerland tops the list in Europe
Given that Switzerland is the second best country globally, it ranks number one in Europe. Of the most populous EU countries, only the United Kingdom places eighth among the top 10 countries. The other large European countries rank in the middle: Germany is 12th, France is 13th, and Spain is 32nd followed by Italy in 48th place. An overall observation determined that there is relatively weak economic performance in Europe due to its low level of entrepreneurship performance, which makes it challenge for the continent to create new billion dollar companies.

Methodology
The results were obtained by taking into account three major sub-indices, Attitudes, Abilities, and Aspirations, which constitute the entrepreneurship super-index also called the Global Entrepreneurship Index. The final results were obtained basing on the scores from each individual pillar of the three sub-indices; the pillars include Opportunity Perception, startup skills, Risk acceptance, networking, cultural support, opportunity startup, technology absorption, human capital, competition, product innovation, process innovation, high growth, internationalisation and risk capital.

For the 2017 GEI publication the authors used 2014-2015 or previous years’ Global Entrepreneurship Monitor (GEM) individual data. For the individual variable calculation, they include 508,009 individuals from 100 countries of the GEM Adult Population Survey; 61 countries’ individual data are from the years 2014-2015, and 39 countries have individual data from the pre-2013 years. They estimated the individual variables for 37 countries by using nearby and similar countries’ GEM Adult Population Survey data. A total of 137 countries participated in the GEM survey.

A detailed report can be retrieved from the GEDI website

(Pic: Hans/Pixabay)

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