A study of entrepreneurship patterns in Asia highlights how the younger generation are making a particular mark in the region, a factor that wealth managers must account for in how they engage with this client segment.

With young whippersnappers like Mark Zuckerberg (Facebook), Chad Hurley (YouTube) and the Olsen twins (Dualstar Entertainment Group) making fortunes, it is a reminder that nearly half of the world's entrepreneurs are aged between 25 and 44.

And in China, the age range drops even lower, with 57 per cent of the country’s entrepreneurs falling between the ages of 18 and 34.

Flashing dollar signs should be appearing in wealth managers’ eyes when they read such figures, which come from the Global Entrepreneurship Monitor. In particular, they underline the need for wealth management strategies - or a significant share of them - to serve young wealthy individuals in Asia as well as across the globe.

"The main wealth management issue for successful young Chinese business owners is to give long-term security to their financial wealth. Their assets are primarily in their company with available extra cash having been invested in real estate. These assets are therefore highly concentrated and illiquid,” said Claude Haberer, chief executive, Pictet Wealth Management Asia.

“What Pictet does at that stage is to advise its client on improving his asset allocation by means of diversification into asset classes with less cyclical variation or at least whose variations are not correlated. We also encourage our business-owning clients to think early about planning for the next generation. Structuring of wealth ownership never starts too early. Better early than sorry!" he said.

The 2012 Global Report, released last week at the GEM annual meeting in Kuala Lumpur, Malaysia, is the 14th annual survey of entrepreneurship worldwide, and is the largest single study of its kind.
According to the study, Latin America/Caribbean and sub-Saharan African regions tend toward having older entrepreneurs, with one-third falling into the 45-64 age range. In Europe, on the other hand, the non-EU economies report, on average, that half of the entrepreneurs are between 18-34 years of age. China was also distinct in claiming a high proportion of young entrepreneurs, with 57 per cent aged between 18 and 34 years.

Technology

According to Thunderbird Global School of Management (2011), Chinese youth spend an average of 34 hours online each week, compared to roughly11 hours spent online by youth in other nations. With regards to wealth management, a recent study by Standard Chartered Private Bank and Scorpio Partnership found that communication behaviour of the world’s wealthy is highly dynamic, particularly in Asia, and that the advent of digital communications has not replaced traditional modes but rather, expanded the channel mix.

“Banks will need to better understand the nuances and benefits of each channel to deliver that high tech, high touch, integrated wealth management experience that the next generation of HNW clients are going to expect. Getting the right combination of personal and digital interaction is what will determine the success of this new client engagement model for the future,” Shayne Nelson, CEO, Standard Chartered Private Bank, said.

Attitudes and Opportunities

Among the GEM report's key findings were noticeable variations in attitudes within geographic regions. The wealthier economies in the Asia Pacific/ South Asia regions - Japan, Republic of Korea, and Singapore - showed lower than average opportunity and capability perceptions while earlier development-stage countries like China, Pakistan, and Thailand scored above average.

However, positive perceptions about opportunities do not always translate into starting businesses. Some 30 per cent of respondents in Asia saw opportunities but only 17 per cent said they expect to actually start businesses in the next three years, the report found.

The study’s authors used “total entrepreneurial activity” rates to measure the percentage of adults (ages 18 -64) who are potential or new entrepreneurs. Data showed that TEA rates were higher in economies with low gross domestic product per capita and lower in high-GDP economies. This ratio corresponds with high levels of necessity-entrepreneurship (no other work options available) in low-GDP countries while high-GDP countries exhibit higher levels of opportunity-motivations. The Asia Pacific/South Asia region showed a mix of TEA levels, with Thailand (19 per cent) and China (13 per cent) leading the way. This compares with the highest ranking of 27 per cent in Zambia (sub-Saharan Africa) and Ecuador (Latin America/Caribbean) .

Entrepreneurial Activity

The report found that innovation-driven economies have more established business owners than entrepreneurs. Greece, Spain, Switzerland, Ireland, and Finland in the EU; and Japan, Republic of Korea, and Taiwan in Asia have one-third more established business owners than entrepreneurs.

Business discontinuance varies across regions. Lack of financing was the most common cause in sub-Saharan Africa, but was less an issue in Asia. Respondents in the US and EU cited other jobs or business opportunities as reasons for business discontinuance.

Entrepreneurial intentions were found to be highest (48 per cent) in factor-driven economies (characterised by low-cost labour, natural resources, exports) and decreased significantly in the efficiency-driven (26 per cent) and innovation-driven groups (11 per cent). The sub-Saharan Africa region ranked highest in intentions (53 per cent) among every geographic region in the world.

Growth Expectations

Singapore, China, and Colombia also displayed both high TEA rates and high proportions of 20-plus growth entrepreneurs compared to others in their regions

The GEM survey took place in mid-2012, with more than 198,000 adults in 69 economies participating in the research. With the largest sample to date, this group of economies represented an estimated 74 per cent of the world's population and 87 per cent of the GDP.