Understanding Enterprise

Entrepreneurship and Small Business, fourth edition

by Simon Bridge and Ken O'Neill

Case study: chapter 17

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The following case study examines a location in the United Kingdom that is attempting to transform itself into the leading entrepreneurial region. For this study imagine that devolution of tax powers took place a number of years ago. Identify the region's attempts at improving interventions in the institutional dimension in order to make it more favourable for enterprise and comment on the cultural dimension making suggestions as to how its influence may be improved. Finally, discuss any potential problems you can see with the method used to develop enterprise policy.

The local economy had been dominated by multinationals that had taken advantage of the favourable tax breaks and the highly-educated and skilled labour market. Generations of the same families had worked in the same organisations whose global status was a source of pride for those who worked there. In an attempt to lessen the areas reliance on foreign investment, the local administration was determined to promote enterprise and entrepreneurship in its area and ultimately make the region the most entrepreneurial in the country. In order to achieve this ambitious objective, in as cost-effective a manner as possible, a task force was established and assigned the challenge of identifying the problems faced by entrepreneurs either wishing to start a business or grow their existing enterprise further. With local elections on the way, it was given top priority and as a result it was agreed that a benchmarking exercise of best practices from around the world would be necessary. This was believed to be the fastest, most effective and efficient manner to develop and deliver the policies needed in order to meet the needs of local business. The results of the global benchmarking exercise highlighted a number of key issues for its target groups including; a need for appropriate premises, lack of support for female entrepreneurs and high rates of corporation tax.

The fact that many businesses found the sourcing of adequate premises to be an obstacle to either their initial establishment or during their development was seen by the majority as a clear justification for intervention. First of all it was established that in urban areas at least, the provision of subsidised work space was going to be sufficient for the needs of the majority of businesses operating in the local area. This would permit home-based enterprises to move into units with more appropriate space and facilities, while also assisting slightly more established firms to upgrade to more adequate premises. This was not however a solution that would be adequate for the needs of everyone. Many businesses in rural areas where workspace was limited, and many manufacturing firms concentrating on large-scale expansions, would not benefit from managed workspace provided by local enterprise agencies. In order to address this, a grant was to be awarded to businesses that met the necessary criteria and that were interested in constructing premises that were to be purpose-built for their individual needs. In combination with this it was announced that measures were to be introduced that would cut the red tape involved in the planning process, making it easier to start new builds, and small businesses wishing to extend their buildings, within a certain size-range, would not have to apply for permission at all.

It appeared that the majority of policies from the benchmarking results tended to focus not only on the financial support, but also providing on training programmes aimed at equipping participants with the ability to start and grow their own businesses. With this in mind, the outlines of these programmes were examined before the Business Development Programme was developed and then delivered through the local enterprise network across the region. Feedback from programme participants was mainly positive, with many citing training in the area of managing the finances of the business as the most beneficial element of the programme. In addition to this an initiative was devised aimed solely at female entrepreneurs in order to increase their participation in the economy. It provided networking and mentoring events focusing in particular on the start-up phase in order to encourage the establishment of more female-owned enterprises.

Traditionally the skill set of the local labour market had been developed with the needs of multinational corporations in mind which in this case had led, inter alia, to an abundance of highly-skilled law graduates. In order to broaden the skill set of graduates produced it was proposed that a number of initiatives, such as an apprenticeship scheme, should be introduced. It was envisaged that these types of schemes could provide local businesses with the talent that they would require to grow and prosper while also allowing young graduates and apprentices the opportunity to gain valuable experience in the workplace. A secondary benefit of this scheme was that by being involved with smaller businesses at the start-up phase, many graduates would learn the skills necessary to start up their own enterprise while also being able to see entrepreneurship as a feasible career option.

Finally, while high tax rates were identified by the taskforce benchmarking study as being a significant obstacle for enterprises, it was not what the local government considered to be a relevant factor for the region. In order to attract foreign investment local rates had been cut on a number of occasions and had remained very competitive on a national basis. Other tax rates and charges remained unchanged and were found to be in line with the national average.
  1. Identify the region's attempts at improving interventions in the institutional dimension in order to make it more favourable for enterprise and comment on the cultural dimension making suggestions as to how its influence may be improved.
  2. Discuss any potential problems you can see with the method used to develop enterprise policy.

Suggested Solution

1. The institutional and cultural dimensions

The Institutional Dimension
  • It appears on the face of it that the institutional dimensions of the region are relatively favourable.
  • These include provision of premises through either managed workspace or the grants in place for eligible businesses to construct buildings that meet their needs.
  • There are a number of improvements that have been implemented in order to reduce the red tape faced by businesses. An example is the measure to cut red tape in the planning process were many small shop and office owners will no longer need to apply for planning permission to extend their properties.
  • The Business Development Programme is a form of business promotion aimed at the macro-social environment.
  • Providing programmes that seek to equip female entrepreneurs with the skills necessary to start their own business is also becoming common practice in many countries in order to increase female economic activity.
  • Add to this the already favourable local taxes/charges in the region and it is easy to see that there is a real drive to make the institutional support available as favourable as possible.
  • Other policies to offer financial incentives could perhaps be adjusted to make entrepreneurship more favourable.
  • As all of these can be changed in small ways it is possible therefore to make incremental changes to the overall institutional position which can vary from very unfavourable to very favourable across a wide spectrum of different intermediate positions. This is indicated, for instance, in attempts to score or rank institutional favourability to entrepreneurship. In reality many regions/countries are neither very favourable nor very unfavourable but can be found in various intermediate positions.
Social and Cultural
  • The cultural dimension in this case could be described as unfavourable to entrepreneurship. There is a long history of family members working for the same organisations which may well influence the perceived desirability of such a career path.
  • Aside from the tradition of following in the career footsteps of family members, there also seems to be a status attached to working for a large multinational. In this case it is unlikely members of this society will fairly compare individuals who have secured places on well-recognised corporate graduate schemes with graduates who have opted to start their own businesses, no matter how successful.
  • It could be argued that, at least on a subconscious level, attempts were made to change the cultural dimension for the better. Targeting female entrepreneurs is becoming common practice and it is no surprise that this would be an outcome of the benchmarking. How cognisant of the fact that by targeting women they were also possibly altering the macro-social environment is unclear.
  • How effective this will be is debatable. It has been suggested that it is influence at the micro level which matters most, which might explain why immigrant communities, for instance, can often be well-disposed towards entrepreneurship, even if others around them are not.

2. Potential Problems

  • Essentially the methods being used now are still the same as those adopted up to thirty years ago and since then, despite all the research, there has been very little input from critical and/or alternative views. Many policy makers seem to consider replicating 'international best practice' to be the cheapest and quickest route to success. Doing their own research, or accessing the research done by others, and using the results to devise their own policy would be slower, significantly more expensive, and riskier because it might not work in the end. Replicating what is reputed to be the best existing international policy, which is available and apparently tried and tested, seems to be the obvious course and the one for which it is much more likely approval can be secured.
  • However a careful examination of much 'international best practice' in enterprise suggests that it is often recycled old policy because it too is based on copying others, although often it is repackaged - and then hyped because those responsible want it to appear to be working. Thus it appears to others as new and successful and so is reproduced in turn. In this way what is essentially the same basic policy recipe is circulated perpetually. Once it has been adopted and used it is then natural to prefer the familiar and to want to do more of the same. New may sometimes be unavoidable but it is awkward and requires new justification and possibly new structures - whereas continuity can be very desirable once the appropriate methods, organisations and budgets have been approved and put in place. So there is a temptation, once a policy is in place, to welcome any indications that it is working but to avoid, or ignore, and contrary indications. As a result, reporting on the policy can involve a selective and uncritical focus on any feedback which appears to support a success hypothesis.