Europe is one of the five top most innovative countries in the world. However, its innovative capabilities and overall competitiveness still lag behind according to the WEF report (2014). Citing from the Global Competitive Report 2013-2014, the total Gross Commission Income (GCI) rank is low. The report further indicates that 45% of people in Europe have never thought of starting their businesses. 79% of people in Europe also believe that it is hard to start one’s own business due to lack of financial support while 69% of businesses do not achieve the broken record of revenue growth between two to five years of their existence. The main reason for these statistics is that there are high regulations for business startups. Besides, accessibility to funds for startup businesses is a challenge. This study examines the most appropriate ways to enhance the level of entrepreneurship in EU through improved innovation and removal of barriers to entrepreneurship.
One way of promoting entrepreneurship is by fostering entrepreneurial mindset and culture across the continent. This can be attained by educating the upcoming and existing entrepreneurs. According to the WEF report (2014), the three core factors that can foster an entrepreneurial culture in Europe include, creating a positive attitude in entrepreneurs, impacting people with skills such as idea building and business intelligence. Other ways include using role models to influence the decisions of people and roll out the process of entrepreneurship. The report further emphasizes the expansion of primary, secondary and tertiary institutions to include facilities and well-trained instructors. The people can later share their knowledge by teaching and offerING practical experiences that are directly linked to the needs of a startup business. According to the author, further peer influence and mentorship will foster a high level of ambition among students.
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Most potential entrepreneurs in Europe have the theoretical idea of startups but have a low rate of conversion to practical application. According to EAB Daily (2014), this problem can be addressed at the college level where entrepreneurial training takes place. The best way to solve this problem is by first linking entrepreneurial education to real-life challenges. Schools should also provide opportunities to students to participate in social entrepreneurship contests like a social entrepreneurship business that may focus on social cause and startups. Furthermore, fostering more global exchange programs is vital. This concept is not new in Europe. The Erasmus program allows students in Europe to start degree programs in one country and finish in another. However, the idea needs to be expanded to business programs as well. A further study by Abeln (2018) encourages interdisciplinary research between the business school and other schools in areas such as economics, law, architecture, education, and sciences. This multidisciplinary approach will not only provide students with entrepreneurial ideas but also make them learn the risks involved in specific areas of startups and how to avoid them.
Access to capital is a crucial bottleneck in Europe when it comes to startups. As mentioned earlier, 79% of Europeans cite inaccessibility to finance as the main reason restricting them from starting or expanding businesses. Venture capital and bank loans are only available to companies that have shown evidence of successful operating. Therefore, Europe needs to amend restrictive regulations on financing and come up with better policies that ensure availability of funds for both startups and scaleups. The supply of business angel financing as the critical source of seed financing needs to be improved. Moreover, transparency on the availability and quality of the angel finance is vital (WEF report, 2014).
The low supply of the venture capital in Europe is due to the high levels of risk aversion following the financial crisis as business owners battle with the increased burden of regulations. In some countries like the United Kingdom, access to bank credit has been difficult due to the high demand for collaterals by banks (Ateljevic & Trivic, 2016). Therefore, reliance on the public sources of venture finance should actively be discouraged since government financing is limited. Large corporations should also be involved in boosting entrepreneurs in Europe. Furthermore, countries in Europe should not limit the ability of the banks to invest through restrictions (WEF report 2014). Further study by Mazzarol (2014) states that Governments in Europe countries need to develop policies that work but should avoid effecting change through direct intervention. According to him, governments should form policies that favor growth across all industry sectors: the startups, the standups, and the scaleups.
Taxation has a high impact on business financing. According to Chen & Frank (2016), most European nations favor debt financing over equity on matters of taxation. Besides, the cost of compliance with tax rules and tax procedures puts a heavy burden on companies. (Princen, 2015) Suggests that countries in the European Union should introduce an international tax consolidation system whereby taxable incomes of all group companies are consolidated to reduce tax distortions. He further suggests that countries should provide an allowance for corporate Equity which will grant a tax reduction for the return on equity. Also, a comprehensive Business Income Tax will be the best strategy to disallow tax deduction on interest payments on the debt. These resolutions will strengthen the financial position of most companies both at startup levels, Stand up levels and scale-up levels.
Startups need to be supported to scale up in Europe. The primary way to achieve scale up is through collaboration or partnership between independent startups or between startup and market-leading corporations and innovators. Collaboration between large market-leading corporations and innovators can create a variety of opportunities through the value chain. It may occur in areas like material sourcing, research, and development, manufacturing and sales. This strategy will not only benefit large corporations, but it will enable SME and start-up companies to access finances, accelerate the process of innovation, obtain a variety of talents/ resources, provide platforms for upcoming entrepreneurs to showcase their capabilities and to offer experience and advice. Besides, new entrepreneurs will have access to new markets and sales networks. They will also learn about new applications fields. However, the WEF report (2014) emphasizes that successful collaboration requires joint efforts of the businesses. It further suggests that boosting cooperation requires large firms to define their strategies for innovation and partnership first. Small firms mainly need to analyze potential leading corporate partners who can be very flexible to accommodate the various needs of startups and SMEs. Furthermore, large corporations should consider publishing their information for public access to increase transparency which ultimately increases collaboration. Second, startups need to promote a culture of research and development through their specific organization structure where employees, partners, and customers are well integrated. This culture will provide an excellent environment for collaboration. Furthermore, it is the role of startups to scout for partners, attract partners, negotiate and fix contracts.
Financial policies promoting entrepreneurship can be tailored to meet the needs of the different EU states through a one-size-fits-all approach where the monetary policies and educational policies promoting entrepreneurship fits into the various economic and political structures of the member states. However, the plan is challenging due to the scale of the underlying monetary differences and the autonomy of most states. It is impossible to meet the specific needs of each member state. Furthermore, the one-size-fits-all approach will further create a severe economic variation especially among countries within the euro area. This variation will arise due to the process of transition of monetary policies. Countries with sound financial and banking systems will have a better transmission to common fiscal policies unlike the nations with unstable financial systems. Therefore the policies will be regarded as too tight for slow-growing economies and too lose for fast-growing economies. Besides, the economy of the underperforming member states, especially in Southern Europe, will experience a high rate of inflation due to the effort of keeping up with the competitiveness of the leaders. The only solution, therefore, is first to make policies accommodative that will ensure the recovery of countries in Southern Europe. This consideration will profoundly reduce the dangers of turning these countries into a painful inflation period. Second, the process of designing and implementing policies should be left in the hand of different governments. However, the European Central Bank (ECB) should only take the role of overseeing the measures taken by the governments by ensuring they maintain the primary objectives of creating regional stability without necessarily getting involved in direct enforcement and punishment. Third, the ECB should monitor the fiscal behavior of individual member states before implementing any policies.
In conclusion, this study shows how Europe needs to provide a conducive environment for business startups and scales as well as encouraging more business standups by increasing the level of innovation and reducing regulation. Therefore, policymakers including business leaders and individuals have a significant role to play in initiating substantial changes that will drive the evolution of products, processes, approaches for conducting businesses as well as healthy business relationships. The European Union should tackle these issues by changing the education system to encourage innovation at an early age, forming policies that will decrease tax burdens and ensure availability of funds for startups. Moreover, the union should also foster collaboration that will ensure businesses rise to higher levels. These suggestions will lead Europe to its position as one of the world's leaders in innovation and entrepreneurship.
References
Abeln, L. (2018). Strong students focus on Business School transformation. Adelaidean .
Ateljevic, J., & Trivic, J. (2016). Economic Development and Entrepreneurship in Transition Economies: Issues, obstacles, and Perspectives. Cham Springer International Publishing.
Chen, H., & Frank, M. Z. (2016). The Effect of Taxation on Corporate Financing and Investment. SSRN , 34.
EAB Daily. (2014, September 19). 10 ways to improve student entrepreneurship .
Mazzarol, T. (2014). 6 ways governments can encourage entrepreneurship. World Economic Forum .
Princen, S. (2015). Determining the impact of taxation on corporate financial decision making. Reflects Perspectives , 161-170.
Roster, P. (2014). Fostering innovation-driven Entrepreneurship in Europe. Enhancing Europe's Competitiveness , 1-64.
