Unitec Institute of Technology

Taking Tonga’s entrepreneurial pulse

For the first time, a Pacific nation has been included in the global monitoring project on entrepreneurship. Unitec’s GEM Pacific team is now reporting back to Tonga’s government and diaspora community a raft of findings about entrepreneurial activity and how best to support it.

Many highly successful companies are born in times of economic malaise. The iconic Fisher & Paykel partnership started up in 1934 amidst the Great Depression, and 2Degrees mobile hit the market last year. Recessions open up opportunities as consumers shift their buying habits, governments reassess regulations and competitors go under. Some entrepreneurs are driven to dust off that good idea after losing their jobs.

Necessity is the mother-of-invention in Tonga, where over half of those who participated in Global Entrepreneurship Monitor (GEM) research last year see increased opportunities for starting up a business in the global economic downturn.

“For Tongans, entrepreneurship is a means of survival,” says GEM Pacific team co-leader Malama Solomona. “While New Zealanders primarily choose it as a lifestyle, Tongan people reach for self-employment as a lifeline. Especially in hard times when the amount of money being repatriated back to Tonga drops.”

BREAKING THE CYCLE

GEM has been ranking countries for the past 12 years, to better understand the relationship between entrepreneurship and national economic development, and Unitec has represented GEM New Zealand since 2001. Amongst the 55 countries surveyed in 2009 Tonga ranked 10th overall for early stage entrepreneurial activity.

Every country has factors that constrain and promote new businesses. While Tongans widely embrace the idea of being self-employed, fear of failure puts the brakes on getting started. With almost 65 percent of the 1,200 people surveyed being afraid to fail, Tonga took out the global number one place ahead of Malaysia.

Factors such as culture and lack of institutional support underlie this constraint, says Malama. “Tonga is a collective society. A typical business is owner operated and looks to the family for its main support, rather than the government or a bank, creating reciprocal financial obligations that can undermine a business’ capacity to grow.”

Fear of failure is justifiable, given the evidence that the Pacific kingdom ranks ahead of only Russia and South Africa in its ability to sustain businesses beyond three and a half years. Competition is one factor. Most retail businesses are now Asian owned and they have collective bargaining power and a stronger business culture, says Malama. “In a small island nation that’s status conscious, who you know can also make the difference between a perceived gap in the market for a good idea, and the success of that idea.”

BUILDING BETTER CAPACITY

While governments in developed countries look to entrepreneurs to stimulate job creation in uncertain economic times, new businesses in developing countries tend to be extractive – farming, fishing, forestry and mining – with minimal growth prospects. Tonga fits this profile, with agriculture being the leading sector and stagnant export production. Economic growth is sitting at around one percent.

The GEM data suggests countries with strict employment protection regulations have fewer entrepreneurs who have a high potential to create jobs. In Tonga, the primary constraint is the stringent regulations for business start-up and activities, which deter experienced people from quitting their job and helping to build new businesses.

From interviewing local experts, GEM researchers identified a comprehensive range of other changes needed to support the optimistic entrepreneurial nature of Tongans, from enforcing intellectual property rights to introducing business studies into schools from primary level.

Associate Professor Robert Davis, co-leader of the GEM team, sees an opportunity to develop an enterprise in schools curriculum for the Pacific, leveraging the work Unitec’s Department of Management and Marketing has put into creating the NCEA curriculum in New Zealand and with the Young Enterprise Trust, which starts at primary school level.

“The World Bank is of the same mind, that education in schools is a priority,” says Robert. “We would need to develop a model appropriate to Tonga’s collective context, rather than one that’s individually oriented.”

SOCIAL ENTREPRENEURS

For the first time, this year’s GEM data includes social entrepreneurs, those whose activities have a social goal, whether profit or non-profit oriented. The areas in which social entrepreneurs work vary widely, from education to economic development but the common element in factor-driven economies such as Tonga is provision of basic services such as health, sanitation and fresh water.

This contrasts with wealthier innovation-driven countries, whose social entrepreneurs tend to focus on recycling, environmental protection and providing services for people with disabilities.

The researchers in Tonga found an overlap between two spheres of activity, with a number of businesses being started to meet a social goal by individuals who needed to make a living

RECOMMENDATIONS INTO ACTION

The research was supported by Unitec’s Research Office and Postgraduate Centre and the Australian Agency for International Development (AusAID), which supports Pacific countries to strengthen their business-enabling environment through agencies such as the Asian Development Bank and International Finance Corporation.

Following a presentation at Unitec to the Tongan community in February, the six-member Unitec GEM Pacific team is taking the findings to Tonga to discuss them with the government and the University of the South Pacific.

It is often difficult for small island states to reflect and act on the wide range of research recommendations about their country but the team is well informed about the work already being carried out in Tonga by various multi-lateral agencies, including progress on meeting its Millennium Development Goals for 2015. “We didn’t go in blind, thinking we had all the answers,” says Robert. “We’re ensuring our objectives match those of Tonga.”

VANUATU IS NEXT

The GEM Pacific team is now focusing on researching a second Pacific location, Vanuatu, with a survey of around 1,200 households and local experts across the country’s 83 islands. Given its different history and evolution to that of Tonga, the results may reveal key differences. One business already in development is organic beef, leveraging wandering cattle on Tanna Island.

The team intends to return to Tonga in 2011 for the next survey, and will focus on transferring knowledge, to begin building capacity within each Pacific country to undertake its own data collection in future years.

This article also appeared in Advance, Unitec's research magazine.