Trade Development Briefing Note Issue 6, September 2011 68931 Gender and entrepreneurship Evidence from the new enterprise survey for Lao PDR Key messages Similarly, female entrepreneurs are less likely to operate in manufactur- There are significant differences in the characteristics of enterprises ing (40 percent of firms compared to 53 percent of non-female owned operated by male and female entrepreneurs in Laos. Firms owned by firms). Female-owned establishments are also less likely to be part of a women tend to be smaller, are less likely to export and are less sophisti- larger firm than their male-owned counterparts, with 6 percent of firms cated in their use of finance and technology. Similarly female owned owned by women reporting belonging to such a group compared to 11 firms are more likely to operate in the services sector, and are less likely percent of firms owned by men. Over 90 percent of businesses owned to operate in manufacturing. Interestingly though, businesses owned by by women are owned by private domestic individuals or companies. women—which make up around a third of all registered firms in Laos— Less than 10 percent are foreign-owned. This contrasts with male are growing faster than businesses owned by men. Female entrepre- owned enterprises, of which 70 percent are domestically owned and 30 neurs also tend to have a lower level of education compared to male percent are foreign owned. entrepreneurs, and are more likely to suffer from an access to finance constraint. However, when controlling for firm characteristics such as Senior management in female owned firms tends to be less well size, age of the firm, sector, and the education level of managers, there educated compared to management in male owned firms. Only 11 appear to be fewer differences in the intensity of business environment percent of managers in firms owned by women have a university degree constraints or in terms of firm productivity. This would suggest two prin- of some sort, compared to over 60 percent of managers in firms owned ciple conclusions: (i) wider policy interventions that would improve ac- by men. The average female entrepreneur in Laos is likely to have com- cess to finance and reduce the burden of taxation on small businesses pleted a secondary school education only, compared to the mean male are likely to have a strong positive gender impact; and (ii) the key con- entrepreneur who is likely to have completed a university education, straints to women’s economic empowerment in entrepreneurship are with a significant proportion also holding a post-graduate qualification. less associated with the investment climate, and more linked to the However, the education level of managers appears to be closely corre- underlying determinants of economic opportunity, particularly educa- lated with the size of the firm. tional and asset endowments. Figure 2: Businesses owned by women tend to be smaller, but are growing at a International evidence suggests that gender equality, and in par- faster rate ticular the extent to which women are empowered economically, is closely correlated with economic growth and poverty reduction. Based on a background paper1 which examines gender and entrepre- neurship using the 2009 World Bank Enterprise Survey data, this brief- ing note aims to shed some light on the nature of male and female owned enterprises in the Lao PDR, and to measure the extent to which the constraints and obstacles entrepreneurs face affect the performance of businesses owned by men and women respectively. The end objec- tive is to make informed policy recommendations that might better sup- port women’s economic empowerment. The Enterprise Survey data defines a firm as being female owned where one or more women are among the owners of the business. Data from a nationally representative enterprise survey conducted by the World Bank suggests that around 31 percent of formal en- terprises with more than five employees in Lao PDR are female owned2. This compares favorably with averages in many other coun- tries and regions, but is below the average for East Asia (Figure 1). Source: World Bank Enterprise Survey for Laos 2009 Female-owned firms are more likely to operate in the retail sector than non-female owned firms. Nearly a half of all businesses owned by Firms owned by women have fewer employees compared to firms women are in retail compared with less than 20 percent of firms with no owned by men, however female owned business are growing at a female owner. faster pace. The average size of businesses in Laos owned by women on start-up was 30 employees, compared with 95 employees for busi- Figure 1: The share of female owned businesses in Lao PDR is high by many nesses owned by men (Figure 2). Unsurprisingly, the average size of all standards, although lower than the regional average firms sampled was larger at the end of the last financial year than at start-up as the average Lao business has grown along with a buoyant economy. The average female owned firm employed 67 people at the end of the last year whilst the average male owned firm has 155 em- ployees. Thus the average female owned enterprise has more than doubled in terms of employment over the last three years. Female and male owned firms do not differ significantly in average age, with the mean year of establishment being 1996 and 1997 for respectively. Simi- larly with regard to turnover, firms owned by women report significantly lower average annual sales figures, but are seeing higher growth rates compared to firms owned by men. 1 Davies and Record (2010) “Gender and Entrepreneurship in the Lao PDR: Evidence from the Source: World Bank Enterprise Survey for Laos 2009 2009 Enterprise Survey�, unpublished manuscript, The World Bank Vientiane Office. 2 Raw data is available at www.enterprisesurveys.org. Technology is less widespread among businesses owned by When controlling for firm characteristics such as size, age of firm, women. The use of communications technology appears to be relatively sector, and education level of managers, there appear to be fewer common among the firms sampled with over half of all firms using email differences in the intensity of business environment constraints. to communicate with clients and 45 percent of firms having their own While probability estimates on the severity of constraints do show access website. However, key differences remain between female owned firms to finance as being much more likely to be a binding constraint among and male owned firms. 62 percent of enterprises owned by men reported female owned firms, the result is not statistically significant (Figure 5). using email to communicate with clients, compared with 38 percent of The fact that business environment constraint differences between male women owned firms. Similarly 53 percent of enterprises owned by men and female owned firms are reduced when controls for background char- have their own websites compared with 28 percent of enterprises owned acteristics are applied, suggests that the gender of the firm owner is per- by women. haps less important compared to the sector of business operations, size of the firm and education of the manager. Only with respect to the courts Businesses owned by women are less likely to export directly, and and access to commercial justice is the difference between male and are less financially sophisticated. Cross country evidence suggests female entrepreneurs statistically significant, and here it is firms owned that exporting directly requires a minimum level of managerial capacity. by men who are more likely to report this as being a constraint. Interestingly, while businesses owned by women are much less likely to export directly compared to businesses owned by men, a higher level of Figure 5: When controlling for background characteristics, differences in the prob- indirect exports partly compensates (Figure 3). This would suggest that ability of constraints binding on firm performance according to the gender of owner- female owned businesses are able to produce export-standard goods ship are less pronounced. Only access to finance stands out as a higher probability and services, but perhaps lack the scale, capital or the necessary con- constraint for female owned firms, but the result is not statistically significant tracts and know-how required to sell abroad. Female owned firms are also less likely to have a bank account, overdraft or credit line and on average own assets worth less than a quarter of the assets owned by male owned firms. This would imply a greater level of vulnerability to economic shocks among businesses owned by women. Figure 3: Businesses owned by women are less likely to export directly Source: World Bank staff estimates based on Enterprise Survey 2009 ** signifies significance at the 5% level. Controls: Size, Age, Sector, Region, Experi- Source: World Bank Enterprise Survey for Laos 2009 ence of Top Manager, Highest Level of Education of Top Manager When asked to identify the biggest obstacle faced by the firm, busi- In conclusion, broader policy interventions that target improved nesses owned by women are most likely to identify either tax rates access to finance and simplified tax rates for small businesses are or access to finance. This may well be driven by the greater likelihood likely to have highly positive gender outcomes. Similarly, while many of female entrepreneurs to operate smaller businesses where taxes are of the key differences in terms of performance and constraints appear to paid on a lump sum basis based on sales rather than profits, and where be determined more by the sector and size of the business (rather than owners have limited collateral necessary to access formal finance. Fe- gender of owner), key questions remain about the proximate determi- male entrepreneurs are also more likely than male entrepreneurs to see nants as to why women entrepreneurs are less likely to be found in larger transport and tax administration in Laos as a constraint (Figure 4). In and more sophisticated sectors. This would suggest that greater attention contrast, firms owned by women are much less likely to identify workforce needs to be paid to understanding the underlying determinants of eco- skills as a constraint. Again this may be accounted for by the characteris- nomic opportunity, particularly with regard to the links between educa- tics of the smaller businesses operating lower skill and relatively unso- tional attainment and asset endowments, and success and opportunities phisticated businesses. as an entrepreneur. Figure 4: Female owned firms are more likely to cite tax rates or access to finance as a constraint Source: World Bank Enterprise Survey for Laos 2009 For further information, please contact: World Bank Office, Vientiane Produced with resources from the Trade Development Facility Poverty Reduction and Economic Management Multi Donor Trust Fund, financed by the Government of Aus- Patou Xay, Nehru Road tralia, the European Union and the German International Coop- Information contained in this briefing note reflects the Vientiane, Lao PDR eration Agency, and administered by the World Bank. views of the authors, and not necessarily those of the t: +856 21 414209 World Bank Group or the donors to the Trade Devel- f: +856 21 414210 Visit us at http://www.worldbank.org/lao/trade opment Facility Multi Donor Trust Fund. e: laoinfo@worldbank.org