Wednesday, April 9, 2014
The World of Entrepreneurship
Over the last couple of months I have been catching up on some travelling, flying to Tel Aviv and Paris to continue my adventures. No matter where I went, I couldn't help but be struck by the entrepreneurship in every location. This is no surprise being someone who studies entrepreneurship for a living. But even after all of these years, I couldn't help but be intrigued by the similarities and differences of new ventures around the world.
Take Tel Aviv for example. What an amazing city of history and innovation! In the same block that you have a historic site of biblical importance there is a start-up working on the latest technology. It was inspiring to see a government that promoted not only entrepreneurship, but also the vital infrastructure necessary for start-ups to survive. They are working to attract funding sources from around the world including venture capitalists and large financial organizations. Unfortunately, the World Bank ranks the country in the lower half of all countries for registering property, getting electricity, and dealing with construction permits. And it was obvious that some parts of the country are more developed than others, but by and large - infrastructure was great. And Israel ranks highly in investor protection, international trade and ease of starting a firm. (http://www.doingbusiness.org/data/exploreeconomies/israel). Corporate tax rates are 25% and firms only pay about 5% in social security contributions. The US corporate tax rate tops out at 34% and the social security contributions are only slightly higher at 6.2%.
In contrast, people that I spoke to in France said that it is very difficult to start a company there. It is not the red tape, although the counties is ranked low for the ease of registering property. This biggest complaint was the cost of hiring and paying employees. Employer paid social security contributions are about 40% of one's salary. 40%! On top of that, firms pay a payroll tax of 5.45%. Then, the corporate tax rate is 33.33%. Think of the implications - a firm hires someone at $50K, but ends up paying $72.5K before being hit by corporate taxes. Even with the strong infrastructure, education, and technology (and pastries), the cost of running a company is high. Many companies choose to remain small to survive.
So the next time you take a trip, look at the local companies. Start-up success is as much influenced by the people who start and run firms as the infrastructure on which it relies.