Women’s Entrepreneurship: OECD Reflections
"Closing the Gender Gap" can be purchased online as a booklet, but all the data are available for public access via the internet.
The OECD data summarized in “Closing the Gender Gap: Act Now” is extensive and well analyzed. The report looks at the economy of women according to the standard compartments of economic convention and sometimes points back to the reproductive burden faced by women, as well as to patterns suggesting discrimination. Interestingly, the report seldom makes links between women’s experience in formal employment and their profile as entrepreneurs, though these seem to jump out as you read the report.
The chapter on entrepreneurship makes note right away that there is a marked paucity of international data from which to construct a picture of women entrepreneurs worldwide. There are several reasons. First, demographic information about businesses often does not include information about the gender of ownership. Second, there is no international agreement on what constitutes male or female ownership (e.g. what percentage of a business must be owned by a woman to be a “woman-owned business” and so on). Third, data are not necessarily comparable across nations. Finally, many women-owned businesses are not registered at all, especially in the developing world, and so we know little or nothing about them.
The OECD has announced a new data collection program, the OECD-Eurostat Entrepreneurs Indicators Programme (EIP), which intends to address the data gap by developing definitions, setting methodologies, and harmonizing collection. The EIP will attempt to standardize definitions, measure characteristics of male- and female-owned entrepreneurs, and assess policy determinants that might affect women’s efforts to start and build businesses. The first data are being collected now: a feasibility study looking at sole-proprietors along indicators including sales, employees, birth and death rates (of the businesses), and growth is underway.
Overall, the newly released OECD report is a meta-analysis of existing datasets relevant to gender and the economy, including entrepreneurship. The data reported, therefore, vary, depending on the topic, and so does the nation set that is covered by any one finding. However, generally, this is a report meant to capture a global picture, with the primary distinctions being between developing and developed nations. What I have done in this summary is focus on those things that seem to apply across the board.
OECD data show that women are still less likely to want to be self-employed than men and that the proportion of female entrepreneurs has not grown significantly in the past decade. Women are more concerned about the loss of benefits (particularly health insurance in the United States) that would come from leaving a formal job, because of the impact on their families. The issue of maternity leave and care would fall disproportionately on women contemplating starting a business, particularly if their current employer or their government provided leave and care linked to formal work.
Women are more likely than men to feel that their business financing should be completely separate from their family finances. (We can infer they would be less likely to encumber family assets, which has implications for getting credit for growing a business. Importantly, in many countries, women would be unable to pledge family assets anway.) Women are more concerned about the implications of business failure for themselves and their families than are men. Females tend to want to grow their own businesses steadily and slowly, using internal funds. As a result, women are profiled as being more risk averse. (We could turn that around and say they are more responsible, of course.)
Women also report very different motives for starting a business. Females around the world are slightly less likely to be focused on bringing a new product to market and they are more likely to be seeking a better work-life balance. They are also, especially in some countries, more likely to be acting out of necessity—that is, to avoid poverty. Again, we might predict this, knowing as we do that their possibilities for formal employment are fewer than for men. Women’s businesses are more likely to be unregistered. That is, their businesses are clustered in the informal economy, as women are in all aspects of economic life.
Women have less experience running a business before they begin their own enterprise. This has major dampening effect on their prospects for success. Here is another place where the formal economy casts its shadow. As I have detailed in earlier posts and will elaborate in future posts, women are invariably and regularly left behind in the “race to the top” in the formal economy. So, for the same reasons they don’t make it to the boardroom, they also don’t have experience running companies. These are the kinds of links between the standard compartments (in this case, employment versus entrepreneurship) that reports analyzing the women’s economy need to make, but usually don’t.
I also could not help but wonder whether women are less likely to be “serial entrepreneurs.” The data do suggest this. Again, we could infer that this was the fearful avoidance of someone who is risk averse in the first place. And that could be the truth of it. But I kept thinking about the women I met in Bangladesh, who, if they had any money at all, had only what their dowry brought.
In many places around the planet, any assets or earnings a married woman has automatically go to her husband. All over the world, women are paid less than men, have fewer earning opportunities, more hours devoted to unpaid labor. So, once that cache of money is gone–a dowry, a small inheritance, even a nest egg saved from wages–it may be gone forever. She might, quite reasonably, view the chances of ever putting the money together again with considerably less optimism than a man would. And, surely, that would cause her to be much more hesitant about risking it. These are the kinds of issues that a truly gendered analysis of these factors needs to take into account.
Access to credit is another issue that retards business growth for women. Here again, their lack of experience running a business hurts them–this time with lenders. So does the dearth of capital assets to offer as collateral (which may be a function of the unwillingness or powerlessness to use family wealth). OECD cites reports from various countries showing that commercial lenders also require more documentation from women, charge them higher interest rages, and demand a premium if their guarantor is also female.
So, not surprisingly, women use less bank credit in their businesses than do men. In interview data, says the report, women are more reluctant to apply for credit and say they have difficulty interacting with bankers. Again, no big shock under the circumstances. (When I was in China last fall, a group of women entrepreneurs told me their biggest obstacle to growth was sexual harassment from bankers.)
OECD suggests women need confidence-building workshops, mentoring programs, and business skills training to help them learn to get credit. (If I hear that women need confidence training one more time—instead of equaI treatment by institutions–I may completely lose it.) Admittedly, OECD is doing a better job than most at recognizing structural obstacles exist that will not be overcome by such things as confidence workshops and leadership programs. But such “fix the women” schemes are becoming the common strategy for ignoring the real issues.
It is important to note that lending schemes intentionally geared toward correcting the gender gap have proven fruitful. For instance, the Small Business Administration in the US corrects for gender discrimination and, as a result, its loans are more likely to go to women.
Micro-credit is another important example. Worldwide, this kind of lending is a gendered phenomenon. Though it certainly has its drawbacks (and they are substantial), the practice has largely grown because it focuses on a segment of the population historically excluded from credit: not the poor, who have always had loan sharks, but the women. OECD reports that, in East Asia and the Pacific, women account for 89% of borrowing from NGOs and other suppliers of micro-loans, but represent only 35% of borrowers from commercial banks. In general, however, women in the developing world are more likely to borrow informally from friends and family (where collective use of funds for credit is more common than in the developed nations).
OECD notes that gender-specific effects on credit are more pronounced in the developing world, where women often don’t have property rights, cannot sell or pledge family assets, and need their husband or father to co-sign a contract. I wish more institutions involved in trying to help women entrepreneurs in developing nations would recognize these limits and focus on eliminating them. At the moment, the only organization I work with having that level of geopolitical sophistication in the Cherie Blair Foundation. Others live in this fantasy world where economics is presumed gender-neutral.
For instance, I am often bemused by the frequent insistence that the way to make female entrepreneurs is by introducing them to venture capital. I can’t think of an industry that seems more testosterone-infused and unfriendly to women (well, maybe I can). The OECD report gives this suspicion concrete dimensions. They report that venture capitalists are overwhelmingly male (70%+, higher in Asia). Women only represent 17% of the professional staff in the venture capital industry—this figure is less than 10% in Europe.
OECD infers that this skewed profile affects investment practice: “The male predominance on the supply side may contribute to the low share of women’s start-ups backed by venture capital: out of the founders or top managers of the 7,700 ventures that received funds in 2011, only some 10% were women.” So, here is another place where more even-handed hiring practices in the formal employment arena might have positive follow-on effects in entrepreneurship.
Angel investing is one avenue often indicated, optimistically, as a source of funds for women. However, the worldwide exclusion of women from top-paying jobs, investment opportunity, and even inheritance shows up here. Only 5% of angel investors in Europe are women in Europe. Only 13% are female in the US.
Women who own their own businesses are much more likely to have completed tertiary education than the men who own theirs. However, highly educated women earn more in formal employment than they do running their own businesses, while men earn more as entrepreneurs. It would seem important, going forward, to look more deeply into the comparison between women in employment and women in entrepreneurship. It is pretty clear from all the other data showing risk, lending, and growth patterns that women would end up earning less as entrepreneurs. We must better understand the reasons women choose to leave the work world when they would be paid better there. While flexible hours is an obvious reason, the loss of benefits would tend to counterbalance that issue somewhat, I would think. And, I continue to believe that the lack of advancement opportunities in formal employment (as well as unequal pay) drives women out, even when they are looking at earning less money.
Women-owned businesses perform the same in the earliest years in terms of job creation and survival rates. However, over time, they do not grow as much and are not as profitable, though they do create as many jobs. There are many reasons, besides lack of credit, that contribute to the lower growth and profitability for women-owned businesses. Women tend to choose different industry sectors than do men. These are less profitable sectors, according to OECD and all other studies. However, it is also the case that women “choose” these same lower-paying industries for education and jobs. This probably happens, first, because these industries are friendlier to women and, second, because they are easier to negotiate with on family.
All these factors tend to converge, then circle around again in a new pattern. So, for instance, women spend fewer hours on their businesses than do men, much as they spend less time at formal jobs. Consequently, as business owners, women earn, grow, and can pay themselves less. A report commissioned by Royal Bank of Scotland, led by my colleague Susan Marlow, shows that, in the UK, women “use” entrepreneurship differently than do men. They seem to start up their businesses when they are ready to have children and close them down when they are ready to return to formal work (rather than “cash out” or “go bust”). This is a very different profile from the prototypical entrepreneur imagined by global economic planners or business school professors. It points, once again, to an explanation that must cross the compartments between employment, family, and entrepreneurship.