Companies can advance social goals by nurturing startup ecosystems.
The old paradigm of development is unsustainable. Long gone are the days where everyone sat back and waited for governments and multilateral organizations to drive development agendas. No sector has a monopoly on development, and no one should feel free to abdicate his or her role in this essential process by simply paying taxes.
Development is being democratized like never before. As citizens, we now have access to an astounding array of information and can be connected to billions of our peers worldwide. In recent years, citizens have mobilized for social change in many settings, from Tahrir Square to Occupy Wall Street to women’s rights movements in countries such as Yemen.
The private sector remains the least active player in this highly energized environment. While most companies at least pay lip service to the importance of corporate social responsibility (CSR), the private sector as a whole retains a reputation for maximizing profit, seeking shareholder value above all else, and divorcing itself from the challenges and ailments of the communities that it serves.
Much has been written about the near absence of the private sector from development strategies, so there is no need to belabor the point. Instead, I would like to shift the conversation toward creating jobs and promoting entrepreneurship, two areas in which the private sector can play a central developmental role. In short, companies need to move beyond CSR and embrace corporate entrepreneurship responsibility (CER).
Creating meaningful jobs is perhaps the 21st century’s most daunting challenge. Entrepreneurship is a powerful tool for both job creation and wealth generation. A recent World Bank report analyzing 99 countries showed that the biggest contributors to job creation are small and midsize enterprises (SMEs) with fewer than 100 employees. And the benefits of entrepreneurship go far beyond job creation. Entrepreneurship is also about expanding markets and fostering innovation, as well as empowering citizens to solve their own problems and create their own economic opportunities.
As a collaborative movement, CER can mobilize the private sector to play an active role in nurturing healthy entrepreneurial ecosystems. Through CER, we can create an entrepreneurial movement for change and empowerment. We can tackle areas such as education to build entrepreneurship skills; access to finance, markets, and networks to help startups launch and scale their businesses; and advocacy to reduce trade barriers and bureaucratic impediments to doing business.
We can map and index entrepreneurship ecosystems to identify gaps, scale existing successful initiatives. We can build cross partnerships with universities, corporations and entrepreneurship organizations. Corporations can also play a pivotal role in supporting entrepreneurship by doing business with startups and providing mentorship to entrepreneurs. Finally, highlighting entrepreneurial role models and success stories through the media is vital to raising awareness and positioning entrepreneurship in our everyday life activities.
Here I focus on three important aspects of a sound CER strategy:
While CER is a global call to action, I provide examples from the Middle East and North Africa (MENA) to show how the private sector can promote entrepreneurship in the service of development.
Education and Mentoring
Education holds the key to nurturing entrepreneurial ecosystems across the MENA region, where outdated educational systems have created a significant skills gap in our job markets. Luckily, other regions provide numerous models of successful public-private partnerships that institutionalize knowledge transfer and skills development. In Singapore, for example, private companies take an active role in curriculum design, while Germany offers mandatory student apprenticeships and on-the-job training programs.
Companies in the MENA region can partner with universities to commercialize R&D and publish research and case studies that showcase entrepreneurial success stories. Companies can help students directly by providing internship and job-shadowing opportunities. They can also team up with nonprofit organizations that nurture the business skills of Arab students and help them launch companies.
For example, Sherkitna is a Jordanian nonprofit that encourages students to become active citizens through entrepreneurship. Sherkitna provides entrepreneurship education, funding, and mentorship to help students transform their ideas into companies. Meanwhile, INJAZ al-Arab is a nonprofit that operates in 15 countries across the region, enlisting corporate volunteers and education ministries to provide experiential education and training to Arab youth. Its programs focus on work readiness, financial literacy, and entrepreneurship.
Mentoring programs are another way for established companies to help start-up founders develop the skills they need to succeed. One such program is Mix N’ Mentor, a series of community events held across the MENA region under the aegis of Wamda, a Web-based organization that works to empower Arab entrepreneurs. At Mix N’ Mentor events, promising entrepreneurs get to discuss specific start-up challenges with investors and industry experts. Another good example is the Mowgli Foundation, a UK-based nonprofit that supports sustainable development by mentoring entrepreneurs and other leaders. Mowgli currently operates in Algeria, Egypt, Jordan, Lebanon, Palestine, Qatar, and Syria. By partnering with such organizations, companies can engage their employees to transfer expertise and industry best practices to start-ups.
Access to Capital
Entrepreneurs need adequate financing to launch and grow their businesses. Yet only 20 percent of SMEs in the Arab world have access to loans or credit lines, according to World Bank research. SME loans account for just 8 percent of total bank loans in the region. In response, countries like Lebanon have come up with innovative SME financing programs. Kafalat, for example, is a Lebanese financial-services company that partners with the Central Bank of Lebanon to provide loan guarantees that help SMEs access financing from commercial banks.
At the same time, angel-investment networks, venture-capital firms, and private-equity funds have been expanding across the region in recent years. Microfinance is another growth industry, populated by microventure funds and microfinance institutions that mobilize capital for microenterprises. Microfinance has been especially successful in Jordan, with 270,000 active loans totaling more than $140 million and almost 244,000 borrowers who maintain an impressive 98 percent payback rate.
To scale, start-ups need access to healthy, growing markets. Unfortunately, most MENA countries maintain protectionist trade policies that tend to stifle regional commerce. Only 10 percent of total trade in the Arab world flows between Arab countries. As a result, markets in the region tend to be fragmented, inhibiting the emergence of a robust and competitive private sector.
The free movement of people and goods is an absolute must if start-ups and SMEs are to grow and thrive. By forming effective public-private partnerships and employing trade data, companies can effectively lobby for the elimination of protectionist policies and the establishment of custom unions and free-trade agreements.
Finally, there’s no better way to support start-ups than to become their client. Start-ups need early adopters to prove their concepts and grow. Business leaders can help by setting up procurement guidelines and other policies that encourage their organizations to do business with start-ups. Such policies can help established companies by introducing innovative practices to their value chains, expanding their market shares, and bringing life to new products and industries.
The Future of CER
The quest to create good jobs has become a global priority. Unemployment and job creation are issues that need to be considered in every policy, national strategy, private-sector initiative, and social activity. In developing and developed economies alike, policy makers have embraced entrepreneurship as a way to create jobs and accelerate growth. The European Commission for instance, recently released its Entrepreneurship 2020 Action Plan, designed to boost job creation, growth, innovation, and economic competitiveness.
Europe is not alone. Entrepreneurship holds the key to job creation, wealth generation, and global market expansion. The CER movement can become the framework for established companies to deploy their resources, capital, and networks to enable entrepreneurship. The payoff will be the enhanced economic and social well-being of societies across the world.
Fadi Ghandour is the founder and vice chairman of Aramex, co-founder and managing partner of MENA Venture Investments, and chairman of WAMDA. He is also the founder and chairman of Ruwwad for Development, a private sector-led community empowerment initiative that helps disadvantaged communities in the MENA region to overcome marginalization.
This article was originally published on McKinsey & Company's Voices, voices.mckinseyonsociety.com. Copyright (c) 2013.
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