Female business owners face a unique set of challenges

Women SME owners encounter four distinct types of constraint: human and social capital limitations, financial disadvantage, societal and cultural expectations, and institutional barriers. Source: Shutterstock

3 Apr 2019

ALTHOUGH all businesses face issues such as access to finance, technology and market information, women business owners face distinct challenges in their entrepreneurial endeavours — particularly in the small and medium-sized enterprise (SME) sector.As long as these challenges prevail, the potential contribution of women’s entrepreneurial activity to economic growth will remain curtailed.

A 2017 OECD study estimates that ASEAN self-employed men are 2.24 times more likely also to be employersthan are self-employed women. This is one indication that women are much less likely to be involved in entrepreneurial activity, creating employment for others, than are men.

More women tend to engage in early-stage entrepreneurial activity, but they are less likely to have established businesses compared with their male counterparts.

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A 2015–2016 report from the Global Entrepreneurship Monitor reveals that Indonesia, Malaysia, Thailand and the Philippines had higher established-business rates for men than women business owners. Male entrepreneurs tend to be opportunity-driven, the report noted, while more female entrepreneurs are necessity-driven, often only turning to entrepreneurial activity because few alternative employment options are available.

Women SME owners encounter four distinct types of constraint: human and social capital limitations, financial disadvantage, societal and cultural expectations, and institutional barriers.

Human and social capital constraints include lack of access to formal education, entrepreneurial skills training and business networks, as well as lack of confidence. In Southeast Asia, women entrepreneurs have 7 percent less access than men to business networks — a crucial source of know-how and contacts for entrepreneurs looking to develop their business.

Discrimination in day-to-day business activity is also a problem. In Malaysia, for instance, male suppliers and customers prefer to deal with male business owners, thus pushing women owners to let male family members take over.

Women tend to be at a disadvantage in accessing financial resources for their business, notably in accessing the full range of debt and equity alternatives. They may be disproportionately confronted with corruption.

Research shows that women business owners and managers are more likely to receive requests to pay bribes when obtaining an operating license in economies that have a greater number of laws discriminating against women.

Societal and cultural expectations that women will manage work and family responsibilities also limit their ability to expand their business.

Women entrepreneurs also face institutional and regulatory challenges that limit their capacity to scale up. In various countries, cumbersome business licensing requirements are likely to be associated with a lower proportion of firms run by female entrepreneurs. 

SMEs owned by women tend to be disproportionately affected by these regulations, given their smaller size and lower access to resources. In some countries women have limited or no access to property rights, hindering access to capital markets because of lack of collateral against which to obtain credit. These challenges hinder their capacity to grow.

In the Philippines, though more than half of new businesses in 2017 were registered by women, fewer women tend to renew their businesses.

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A new study finds that only 134 out of 480 Philippine SMEs surveyed had scaled up in the past two years. Scaling up is defined as an increase in firm size using employee numbers and an increase in sales by at least 10 per cent over two years.

While there are no significant differences in firm performance by gender, SMEs owned by men earned twice as much from share of exports to total sales compared with those owned by women.

Technology-intensive SMEs owned by women are significantly more likely to scale up, but tend to make limited use of more sophisticated technology — for example, e-commerce, websites, digital payment or cloud-based storage.

Policies encouraging these entrepreneurs to make better use of their technology could boost their capacity to develop. In the Philippines, fostering this kind of innovation could help boost economic performance.

Having an entrepreneurial mindset plays a critical role when women SME owners decide not to apply for a loan, not export or not expand their business. The number one reason given for not exporting was that the owner was content with the current state of business. For not applying for a loan, it was an aversion to taking on any debt.

Although barriers facing women-owned SMEs are not dissimilar to those that male entrepreneurs face, there are significant gender differences in the reasons that women give for not scaling up — such as loans, innovation, expansion or exporting. These differences have policy implications for government and business stakeholders in understanding the enabling factors and barriers that women entrepreneurs face.

Apart from strengthening overall social protection schemes, offering policy incentives to create women’s business associations and increase the number of women business network leaders would help to elevate the social capital of women entrepreneurs.

Likewise, raising awareness in business networks about gender discrimination would help to encourage more equitable behaviour towards women entrepreneurs. Strengthening institutions must be at the core of policy reform to support the scaling up of women-owned SMEs.

Given the crucial role SMEs play in lifting developing economies, it is in every country’s interest to coordinate policy for providing a level playing field for women-owned businesses to scale up.

By Maribel A. Daño-Luna, Senior Researcher, and Rose Ann Camille Caliso, Research Associate at the Asian Institute of Management Rizalino S. Navarro Policy Center for Competitiveness.

This article appeared in the most recent edition of East Asia Forum Quarterly, ‘Investing in Women‘. It has been republished under a Creative Commons license.