Understanding Enterprise

Entrepreneurship and Small Business, fourth edition

by Simon Bridge and Ken O'Neill

Case study: chapter 15

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The following case study is based on a newly established fictional republic in Europe that is in the early stages of setting out a plan for how the government will support and encourage enterprise at different levels throughout the country. As part of a consultancy team brought in from outside the country, you have been asked to assist in preparing a report outlining potential approaches to achieving the policy objectives - in particular by targeting individuals and businesses

The recent publication of unemployment figures has produced some worrying reading. Politicians and analyst alike were shocked that not only was the figure higher than anticipated, but also at just how great was the variance from their anticipated projection. In addition to this many economic commentators are predicting the figure to grow even further by the end of the next quarter because businesses in the country are not competing on a world or even regional level. As a result, many firms are faced with the prospect of scaling back their operations or ceasing trading altogether.

To formulate an effective action plan, it was agreed that the best starting point would be to look at the current climate before attempting to make changes. Figures relating to individuals that are interested in starting their own business are not available as at present the newly-established Department of Enterprise has mainly concentrated on supporting businesses currently in existence mainly comprising branches of multinational organisations. This said, before the establishment of the new Republic a survey on attitudes to entrepreneurship had been conducted by one of the largest universities in the region and it was believed that the findings would at least give an idea of the perception that most nationals had regarding self-employment. The research had found that many individuals were curious about starting their own business but did not feel that they had the necessary skill-set to make self-employment a viable reality. Another group of participants said that, while they also would like to work for themselves, they believed that all the truly profitable business ideas had been exploited and they could not imagine coming up with an innovative business proposition. According to the paper, a significant number of individuals questioned had said that working for a large multinational firm was the most desired form of employment as this had been the tradition in many families for generations.

Historically, there has been a relatively high proportion of business failure in the region with the majority of failed businesses being those that had operated for one year or less. This was not a startling statistic as, although the failure rate of start-up businesses was slightly higher than the regional average, it was not high enough to warrant any further attention. What was perhaps a point of interest were the motivations for starting their own enterprise that participants in the research paper gave. Approximately eighty percent had cited supplementing their income as the primary motivational factor for starting a business and did not see their micro-enterprises as a long-term opportunity that could be grown to any scale - rather it was an attempt at exploiting short-term opportunities that had been presented in the market. There was however a proportion of the respondents who believed they had a business that could grow to be nation-wide given appropriate assistance and support. Although they only made up ten percent of the survey, this still may be an area to examine further.

One resource that is abundant in the country is quality graduates in the areas of IT and computer science. Graduates from the major universities have found themselves in high demand and have been able to command a high salary abroad although many find it regrettable that they have to relocate far from family and friends. The IT sector at a domestic level is however practically non-existent and apart from a number of opportunities at the larger companies, there are very few local firms operating in the area with those which do remaining relatively small. Exactly why these smaller firms have been unable, or unwilling, to grow is unclear, however it has been suggested that the traditional obstacles facing IT firms such as the cost of R&D, a lack of tangible assets and products with no track record could be to blame.

Finally the distribution of wealth is another area to be taken into consideration. The major cities suffer from the same problems as their counterparts in most neighbouring nations. While there are areas that have benefited from heavy investment under the previous regime, there are just as many places that suffer from noticeable deprivation in the forms of higher unemployment, lower levels of education and higher levels of crime. In most of these areas there are few employment opportunities with the majority of residents having to travel long distances for temporary jobs that pay little. Among the highest rate of unemployed in areas of high deprivation are women and individuals from the ages of eighteen to twenty five. In terms of youth unemployment there are no statistics available to show the different levels of education in this group. What is known is that these areas have a greater rate of pupils leaving school before the age of eighteen. The last census carried out showed no unusual proportion of women in deprived areas and the number of births was also in line with national averages although the mortality rates were slightly higher.

As part of a consultancy team brought in from outside the country, you have been asked to assist in preparing a report outlining potential approaches to achieving the policy objectives - in particular by targeting individuals and businesses.

Suggested solution

NB - The following suggested solutions are based on the more traditional approaches indicated in Chapter 15 rather than the alternatives suggested in Chapter 16 and 17.

Individuals and business

  • Pre Start-up: rather than focus purely on existing businesses the Department of Enterprise should aim to encourage and support enterprise from the ground up. The establishment of local enterprise agencies that could act as an initial information point for potential entrepreneurs could help in promoting entrepreneurship as a viable possibility throughout the nation. Seminars in exploring business opportunities could perhaps inspire many to conjure up and develop their ideas. For those with a business idea, assistance in market research, product development and preparing projected accounts could be offered to help individuals develop the skill sets necessary for running their own business. Moreover, campaigns to change attitudes to self-employment could be explored and implemented.
  • Business Start-up: the survey has shown that the majority of start-up businesses are not established with the intention of developing them to any scale. These micro-enterprises, although potentially useful to the individual in question, are unlikely to produce any sort of benefits outside their more immediate environment. It is for this reason that perhaps the main focus of the government should be stimulating and helping the ten percent of businesses that are eager to grow and employ more people than just the entrepreneur him/herself.
  • High-Tech, High-Growth Businesses: The fact that graduates in an industry traditionally considered to have high-growth potential are available is an opportunity that should definitely be exploited. Targeting this sector for support is not straightforward as often the greatest assistance that this type of enterprise needs in the start-up phase is access to capital which lending institutions are understandably wary in providing. A main reason is that assessing the viability, and hence the ability of the business in question to repay loans, is usually difficult due to the nature of the products/services they provide. In order to support these businesses the government could establish a fund for research and development aimed at these high-tech firms in addition to experimenting with the clustering of enterprises and support services - seeking to replicate places such as Silicon Valley.
  • Geographical areas of disadvantage: Policies have been adopted to assist in the regeneration, through enterprise and small business development, of areas of special disadvantage. Deprivation is a complex issue and the nature and extent of its impact varies, not least between urban and rural areas. The promotion of enterprise can play an important role in addressing social exclusion. It should not, however, be viewed as a panacea for social and financial exclusion. High levels of displacement of existing businesses, the risks involved in setting up in business and the propensity to create marginal businesses are potential limitations to the contribution of small firms in deprived areas. On the other hand, run-down inner cities and depressed rural areas have benefited from initiatives designed to promote social enterprises, such as 'community enterprises' and co-operatives. In addition, managed workspace has been publicly funded in whole or in part in an attempt to provide localised support that is relevant and real (and visible).
  • Population sub-groups: In this case women and unemployed youth are two sub-groups of the population that have been identified as potential targets for support. In some cases women can find it difficult to gain employment due to cultural attitudes towards women in the workplace. These cases are difficult to address as cultures are the result of generations of experiences and perceptions of categories of people and are not easily changed. Legislation may help although the political will to enforce potentially unpopular decisions can often be lacking. Where culture is not an obstacle there can sometimes be more practical issues such as affordable childcare. In this case not enough information is given to make an informed decision as to what action to take so perhaps the best advice would be to investigate the issue further by engaging the group in question and finding out what their requirements are.
Youth unemployment can often be the result of not having the experience necessary to get a job and not having a job to get the experience. There are a number of ways to approach this with government-funded apprenticeships and other work placement programmes while entrepreneurship education at school may help in the longer-term.