Business Essays - Economy Entrepreneurship Employment
Economy Entrepreneurship Employment
For more than twenty years the main driving force of a modern economy has been entrepreneurship. Entrepreneurs have constantly been meeting the needs of growing and stable economies through the creation of thousands of businesses each year. Due to the large numbers small businesses and their considerable micro-macro level effects on the nation they form the backbone of any modern economy (Bruyat and Julien, 2000). Entrepreneurship forms the basis of innovation, creativity, creating employment and new enterprises and eventually nurturing the economy as a whole. (Henry et al., 2003). The importance of entrepreneurial activity cannot be overlooked as highlighted by Michaelis et al (2001) in Robertson et al 2003 that SME's were responsible for more than 55 per cent of the total employment within the UK, and the SME's contributed 51 per cent of the country's annual turnover. Moreover 12 per cent of the workforce was self employed. The above statistics clearly indicate how dependant the UK economy is on entrepreneurial activities.
Research has shown that there is a mixture of social and cultural factors that fostered an anti-entrepreneurial culture within the country. It is interesting to note that both Britain and the United States have the right economic and political infrastructure to foster entrepreneurial activities within their respected countries. But the startling fact is that over the past six years, the Untied States has the highest level of entrepreneurial acitivty in 2007 which was recorded at 9.6% whereas the United Kingdom was nearly at half by recording a mere 5.6%. The majority of the four BRIC* countries had also recorded higher entrepreneurial activity than the United Kingdom: Brazil (12.7%), India (8.5%) and China (16.4%). The diagram below highlights the total early stage entrepreneurial development in the BRIC and G7 nations. [GEM, 2007]Get help with your essay from our expert essay writers...
Even though Britain is seen as one of the more ambitions nations within the European Union United Kingdom still lags behind the United States in high-growth start-ups, which implies that new enterprises within the USA expand at a much more rapid pace than those countries within Europe (HM Treasury, 2003) in Robertson et al 2003. As figures reveal UK has low levels of HEE* than other high-income countries, with 7 in every 1,000 adults being under this category which is much lower when compared to US (15 in 1,000), New Zealand (14, 1000), Iceland (13, 1000) and Canada (12, 1000). One of the siginificant reasons behind these statistics are due to the competitive salaries offered by large organizations which provide a greater security, than business ownership and risks associated with them. Alistair Fraser, Global Head of Owned-Managed Business Services stated that With a buoyant economy providing attractive career options, large companies often fast track the talented individuals who might otherwise make ideal high ambition entrepreneurs. Combined with the high opportunity cost of starting a firm in the UK, the risk reward balance simply doesn't add up for many ambitions individuals. REF: REVEALED: THE WORLD OF ENTREPRENEURSHIP.
Findings indicate that Britain is not as entrepreneurial as it was ten years ago despite the fact that the government has taken several initiatives to promote business innovation. Fostering enterprise development within the country is one of the government's main political agenda. The research undertaken by Robert Huggins and Nicholas Williams from Shienfield's management school has shown that business start ups have been in decline from 1997while the country's self employment rates haven't seen significant changes in the past decade. Dr Huggins also suggested that with the ruling labour party there has been a significant increase in employment within the public sector where individuals shun the risks of starting their own businesses by securing fixed wages from the public and private sector.
The current state of entrepreneurial activity is disturbing when compared to the fact that a spokeperson for Department for Business, Enterprise and Regulatory Reform said that the United Nations (U.N.) had ranked UK first and put the nation among the top ten globally to do business with ease. The OCED conformed this by adding that UK has the least number of barriers to set up a new enterprise.[Lippset, 2007]
Through the understanding of the current context of entrepreneurial activities within the United Kingdom, it comes to light that Britain has one of the lowest barriers to entrepreneurship and the government has set up several initiates that have helped foster an enterprise culture within the United Kingdom, but the astonishing fact is that Britain has the right environment for an enterprise culture but there is still a considerable decrease in the nascent entrepreneurial activity within the country as per the GEM report (2007).
Over the years there has been a great deal of research which has focused on the characteristics of entrepreneurs and the motivating factors for them to start their own enterprise. Most research in this field is based on those entrepreneurs that have already established and running their new ventures. There has been very little research on people who are still in the process of starting a new business (Mazzarol et al, 1999). In order to a gain an complete understanding of entrepreneurship, and the barriers and triggers affecting start ups both fields must be studied. It has been very well put forward by (Mazzarol et al, 1999) that is not sufficient enough to approach only those (entrepreneurs) who have fulfilled their objectives.
The purpose of this research is to bring to light those hidden factors which are limiting the development and growth of entrepreneurship within the country. The study will also aim to understand the attitudes of potential entrepreneurs and critically analyze the factors that form barriers to potential entrepreneurs who would like to start an enterprise within Britain. This research will also try to draw recommendations for how these barriers can be surpassed or minimize the impact of such barriers which will lead to encouragement multiplication of Greenfield enterprise in the UK. By having a grasp over what drives young people to start a business in this research, the study will provide some clear approaches for shaping policy to encourage growth of British companies.
To investigate the factors that form barriers to business startups and its effect on contemporary young entrepreneurs
To study the general attitudes towards entrepreneurship and to understand how the public perceive opportunities to establish a business
To provide adequate strategies and recommendations which will help both the government and the potential entrepreneurial population in overcoming these barriers
Despite its apparent importance discussed in the previous chapter, there is no agreed definition of either what constitutes an entrepreneur or entrepreneurship. The term entrepreneurship is usually associated with a new venture creation and small business development as stated by (Gibbs, 1996) in (Kirby, 2003). Carland et al (1984: 358) in (Kirby, 2003) suggested that An entrepreneur is an individual who establishes and manages a business for the principle purposes of profit and growth. Whereas Harwoord (1982: 98) has suggested that an entrepreneur is someone who takes initiative, assumes considerable autonomy in the organization and management of resources, shares in the asset risk, shares in an uncertain monetary profit, and innovates in more than a marginal way In contrast to this definition Meredith et al. (1982: 3) sees entrepreneurs as people who have the ability to see evaluate business opportunities; to gather the necessary resources to take advantage of them; and to initiate appropriate action to ensure success.
From the above definitions it is clear that entrepreneurship is not an event but an process which may take years to evolve and develop. It is also evident that entrepreneurs are those people who identify an innovation to seize an opportunity, mobilize money and management skills, and take calculated risks to open markets for new products, processes and services.
It is interesting to note that the study of entrepreneurship has been drawn from two lines. Firstly, the personal characteristics or traits of the entrepreneurship (internal locus of control) and the external factors such as social, cultural, political and economic factors (external locus of control) (Mazzarol et al, 1999). The study of these two lines of will form the basis though which we can gain a better understanding of both the external and internal factors that form barriers towards business start-ups within the UK. Firstly we shall look at the models and theories that were based solely on the entrepreneur and then we shall review literature which is based on the environmental context.
MODELS AND THEORIES ON THE ENTREPRENUER
The Personality Approach towards Entrepreneurship
Early research on the field of entrepreneurship associated the term with the 'great person' theory which focused on the individual's personality traits. The advocates of this approach have stated that there are certain individual characteristics that are related to entrepreneurs which initiates the intention to pursue an entrepreneurial career. This school of thought around four such as the need for achievement, which were then thought to be the motivational factors in an individual's decision to become an entrepreneur. This approach is grounded in the study of successful people who tend to exhibit similar characteristics that if copied would increase the success opportunities for the emulators
This concept gave birth to ideas such as an entrepreneur is born not made. The trait approach had made it evident that the need for achievement (McClelland, 1961) in (Mazzarol, 1999), risk taking propensity (Brockhaus, 1980), locus of control (Brockhaus, 1982), tolerance of ambiguity (schere, 1982), and desire for personal control (Greenberger and Sexton, 1988) were identified as possible characteristics of entrepreneurial behavior. These characteristics which were identified are still very much relevant in understanding entrepreneurial behavior.
The personality approach plays a significant role in understanding the internal factors that promote entrepreneurship. The charecteristics such as the internal locus of control, tolerance of ambiguity and personal autonomy have
Social Development Approach towards Entrepreneurship
The social engineering school of thought gave entrepreneurial study a new dimension by stating that individualism itself is a social phenomenon (Bendix, 1956). This approach viewed entrepreneurship as an output which results from the interaction of internal and external social factors. The social school stated that entrepreneurs are not born but made. It is said that there are a number of factors that are seen as significant to the social development of entrepreneurs. In general they fall into one of the three broad categories that have been outlined below
Innate: Factors such as intelligence, creativity, personality, motivation, personal ambition
Acquired: Learning, training, experience in incubator organizations, mentoring, existence of motivating role models, etc
Social: Birth order, experiences in family life, socio-economic groups and parental occupation, society and culture, economic conditions, etc.
The approach also advocated that while the individual's predisposition plays an important part in initiating action, it does not have any meaning in isolation from their experiences. Therefore implementing that other external variable such as family influences, culture, role models, work experiences, ethnic influences (Bridge et al, 2003; Boyd and Vozikis, 1994; Henderson and Robertson, 1999; Gibb and Ritchie, 1985) play an important role in the study of influences on entrepreneurial intentions. Present research also indicates a direct relationship between social factors and entrepreneurial activities within countries. For example the GEM (2000-2002) report in the UK suggested that the strongest barriers that aspirant entrepreneurs face are social and cultural attitudes where people showed negative attitude towards wealth creation, self employment and business failure (Robertson et al, 2003).
The social development model provides a more plausible picture of entrepreneurial behavior. The approach has clearly helped in identifying the large number of factors, some internal to the entrepreneur, and others which are the features of the environment within which entrepreneurs express themselves. [Wickham, 2006]
MODELS AND THEORIES BASED ON THE ENVIROMENT
The theories and research on the trait theories has partially helped in understanding entrepreneurial studies, but the authors who have proposed the models and theories on the environment advocate that the trait approach has come to a dead end. The major limitation of the trait and the sociological approach towards entrepreneurship is that they have ignored other major factors that influence the entrepreneurial process. The entrepreneurial process by definition involves all the activities, functions and actions perceived in identifying opportunities and creating organizations to persue them. Not only the internal factors but the external environmental factors play a dominant role in the process of initiating entrepreneurship.The process driven school believes that the external environment plays an equally vital role in developing entrepreneurial activity. Dyer (1994) in Robertson (2003) had noted that in more recent research carried out by (Secrest, 1975; Aldrich et al., 1986; Kirchoff, 1991) had identified the social and economic factors that affect entrepreneurship. There are various factors within the environment such as the availability of economic resources, quality of life in terms of education and health issues which play a critical role on entrepreneurial intentions (Pennings, 1982).
Researches under this school of thought also claim that the individuals ability or self-efficancy is a key variable which determine both the strength of the entrepreneurial intention and the chances that those intentions will be converted into actions. The self-efficeny itself depends on a number of factors including background factors, educational attainment and vicarious experience. There are also other factors such as learning through observation, role models, perception of personal qualities which combine to form the knowhow of the individual in order to attain his/her entrepreneurial objectives.
The push and pull factors have also been very well cited in previous research. The push factors are likely to be redundancy, blocked promotion, recession, and unemployment, frustration with previous employment, the need for creative expression and the need to earn a reasonable living. The pull factors may include independence, creative expression, high motivational levels, and monitory benefits. A recent survey of a broadly representative sample of small business owners in Britain found that more than 50% said independence was their main motive for running their own businesses. Only 18% said their main reason was to make money, and 10% mentioned other reasons that included enjoyment, challenge, more room for creativity and personal satisfaction. Another study involving Russian entrepreneurs revealed that 80% of the surveyed said they started a business so as to be their own boss, and that having their own business reinforced feelings of autonomy and freedom (Bygrave, 1994).
Small Business Policy Support and Governance
There is empherical evidence that there is a direct relationship between creation, expansion and development of the small business sector and the resurgence of interest in the small business as an object of research and policy among academics and policy makers (Cater & Evans, 2000). Within the United Kingdom there were 3.6 million businesses in 2000 when compared to 1 million in 1979. Over the past decade the UK government has placed a strong emphasis on small business development and entrepreneurship by stressing on productivity, innovation and regeneration. In the 2003 policy framework the government had set out a package of reforms for small business with special emphasis on the small business sector. This has seen an increase in innovation, investment and training for small businesses.
Since 2004 the government has set a specific policy towards entrepreneurship which has focused around seven themes which have been outlined below
Creating an Enterprise Culture
Engendering and sustaining dynamic start up markets
Increasing the Capability of business growths
Improving access to finance
Improving the Business experience of government services
Enterprise for all, with an emphasis on increasing entrepreneurial activity among those hard to reach and excluded groups.
In the year 2006 there has been a number of changes in the enterprise policy and the delivery of business support. The government will continue to carry forward the seven strategic themes that have been outlined above. The government has also included specific initiatives to support and promote entrepreneurship which include the following:-
The launch of two new Enterprise capital funds scheme which will try to provide financial growth and bridge the equity gap from 0.5 million to 2 million. Both these schemes have been allocated 50 million pounds in funding.
The government is also changed its procurement procedures and has made it mandatory for all government departments to seek atleast 2.5% of its procurement from small innovative businesses. In 2006 the government set aside 429 million pounds for this initiative.
In the 2006 budget there was a 30% tax relief threshold that had been set aside for investments in Venture Capital Trusts.
The government has also launced the task force for female entrepreneurs which will act as a single voice to raise concerns and promoting the interests among female entrepreneurs and to help increase female participation in entrepreneurial activities.
The government has shown continued support of the 'Make Your Mark' campaign and 'Enterprise Week' which has continued to grow with a total of 3, 184 events which are run by more than 1,400 organizations and reaching 4,50,000 participants.
In order to facilitate a more dynamic start up within the country the government has introduced a minimum of 19 percent corporation tax on distributed profits to insure that the corporation tax rate that are below the 19 percent mark will be available for SME's to reinvest in their businesses. The government has also increase the first year capital allowances for small businesses who spend atleast 50 percent of their expenditure on purchasing machinery and equipment for their business.
Regulation by the UK Government
The government has introduced the Regulatory Reform Action which is aimed at simplifying legislation involving the regulation of businesses. The reform is to take over 650 deregulation measures to modernize and streamline the planning process in order to improve the delivery of public services to private sectors which will make it easier to obtain patient rights, and also reform the company law which more or less reflects the need of small businesses.
In the 2004 budget the government had also reduced the regulatory burdens that small businesses face. The government has reduced the VAT compliance costs for businesses the government has raised the VAT registration threshold from 52,000 pounds to 58,000 pounds by which more than 5000 firms would not have to register for VAT. It has also raised the turnover ceiling from 600,000 to 6,60,000 pounds.
[National Dialog on Entrepreneurship, 2005]
CRITICAL FACTORS AFFECTING START-UP OF A NEW ENTERPRISE
Even though there are no definitive barriers or motivators that which will help form new enterprises. There are certain common factors which are seen as critical for most potential business entrepreneurs. Bygrave (1994) states that there is always a triggering event that will nurture new organizations. The diagram below is an entrepreneurial process model which is based on Carol Moore's model which was presented in Understanding Entrepreneurial Behavior. The model highlights the possible triggering events and other factors which will help shape the potential entrepreneurs implementation and growth of his/her business idea or innovation. The model below can also be viewed as a multidimentional aspect towards entrepreneurship, which indicates that the entrepreneurship is a complex, multidimentional framework that emphasizes the individual, the environment, the organization, and the venture process.[Hodgetts & Kuratko, 2004]
Main Barriers Identified Within the United Kingdom: Review of Past Findings
In many societies the formal education system is recognized as a strong influence in the development of conformist, anti-entrepreneurial behavior. As a consequence, many in society are at best ambivalent towards entrepreneurship as a result of their education conditioning.
The traditional education system in the UK, focuses and process of much education as it currently stands is working against the nurturing of entrepreneurship. According to the GEM(2000) out of the 39 key informants in the UK 11 identified education and training as the most single key issue confronting entrepreneurship within the country. In the Entrepreneurship Education Index, The UK result was the worst along with France and Japan. activity. In the UK the proportion of individuals enrolled at tertiary level has historically been relatively low. For example, in 1980 enrolment was only 19% of the relevant age group, the lowest of all GEM nations.
Another startling fact is that The Education Minister, David Blunkett, has stated that some 7 million adults in this country have real problems with literacy and n um e r a c y. This means that as many as one in four cannot calculate the change they should get out of 2 when buying goods worth 1.35.
Cultural and Social Norms
Culture play's an important role in influencing people's lives, it is proposed that the culture of societies and the characteristics of people living in these societies, impacted by certain personality traits will influence the degree to which entrepreneurship is initiated. Clearly, culture is important in any discussion of entrepreneurship because it determines the attitudes of individuals towards the initiation of entrepreneurship (Vernon-Wortzel and Wortzel 1997). From the GEM (2000) report findings, 17 of the 39 UK experts of them identified a culture related issue as the most significant issue facing the entrepreneurship. People in Britain tend to be risk averse, because they tend to see the social costs of failure as outweighing the financial benefits of success. There is a collective desire to maintain the status quo in the UK, reflected in the importance attached to preserving social status, a preference for working in established and recognized organisations and a resistance to change in one's immediate environment. The re is a widespread perception that entrepreneurial success brings benefits to a few but provides little general benefit to society as a whole.
A business will neither start up nor succeed without motivation. Motivation is the key to entrepreneurial activity. Boyd and Vozikis (1994) studies on student motivation showed that a total of 11 per cent of students perceived the ownership of one's own business to involve too much hassle, stress, and hard work. These students seemed to think they would be happier without the responsibility. A total of 6 per cent of students stated that they did not have the time to devote to entrepreneurship, half due to student commitments and half due to the fact that their relationships/family life would suffer.
Lack of an idea/awareness of the market
To give an overview of the awareness within United Kingdom from the GEM (2001) findings, a total of 22 per cent of students did not start up because they do not have a business idea or opportunity, which they perceive to be vital. Only 10 per cent of regional aspirants see the business idea as problematic. Shurry et al. (2001) argue that a small majority of entrepreneurs in the UK get their business ideas from previous or current employment. Most students are lacking in work experience and consequently find it more difficult to develop a good business idea.
Lack of skills
There is a strong link between the idea and skills in terms of being well prepared to start up. One of the strong factors that pose as a barrier to potential entrepreneurs within the UK is that they is a deficiency of entrepreneurial skills. UK Qualitative responses relating to this variable show that 7 per cent of students feel they do not have the work experience necessary, in their opinion, to start up. A total of 2 per cent said that they needed more market knowledge. Students' perception of self-efficacy is thus affected by their work experience or knowledge, which corroborates the studies conducted by Wang et al. (2001), Davidsson (1996) and Gibb and Ritchie (1985). A total of 4 per cent said they know nothing about starting a business and how to go about it, concluding that it is not for them. The start-up know-how again contributes to the students' perception of entrepreneurial feasibility and self-efficacy (Boyd and Vozikis, 1994; Wang et al., 2001). A total of 2 per cent of the students mentioned that their educational field was not something that lent itself to the possibility of start-up.
CORE REASONS FOR BUSINESS CLOSURES AND AVOIDENCE OF BUSINESS START-UPS: GEM REPORT
The purpose of this research study is to analyze the barriers that potential entrepreneurs face while establishing their business. This paper has been divided into three phases. Phase one is a critical review on the relevant literature on entrepreneurship and its barriers facing potential entrepreneurs Phase two of this study is an investigation of the identification of the potential psychological and environmental barriers that individuals face in the taking the decision of becoming an entrepreneur. This preliminary investigation will be carried out using surveys where two questionnaires which will be given out to 30 individuals. The questionnaires have been designed to investigate the proposed barriers and the general attitudes of those who are, or not currently trying to establish their business and the questionnaires have also been designed to accommodate those individuals (entrepreneurs) who have established or currently running a business on their own or with others. Using this type of questionnaires will give this research study a broader base through which investigation of the potential barriers can be identified. This will bring to light the differences in the proposed barriers by individuals who want to start their business and also the actual barriers that established entrepreneurs have identified while setting up their new venture.
The third phase of the research will measure and analyze the finding that will be brought forward by the questionnaires which have been distributed to the sample population. The findings will then be compared to the exisiting barriers that have been put forward by researchers within this field of study. And finally using the findings I shall develop appropriate strategies and recommendations which will help the government and individuals overcome the greatest barriers which have been identified within the research.
The questionnaires distributed to the sample population consisted of a mixture of open-end and close end questions. The open end questions have been provided in the questionnaire to permit the respondent to answer more completely and to reveal the reasoning behind the answers. The open end questions have also been designed to cover those points which haven't been considered within the closed ended questions. The questionnaires have a greater weight age of close ended questions, the reason behind this strategy, is that the questions are aimed to analyze the relevance of the literature which focused on the possible barriers towards entrepreneurship. This will help to analyze whether the barriers that are have been put forward by researchers in this field are still relevant in present conditions.
The convenience sampling technique has been used to gather data on the sample population. The technique has been used to be able to obtain a considerably large number of completed questionnaires quickly and economically. The sample population for this research is those individuals who fall in the age category from 23-65 and who are British citizens currently residing in London. The field study has been restricted within London due to the lack of financial funds and time. The age category of the sample (23-65) generally represents the working population within Britain.
DEFINITIONS OF THE VARIABLES USED WITHIN THE RESEARCH
Variables in terms of research study are those entities that can take a certain value. A variable does not only form quantitative values but they can be qualitative entities as well. Below are the following variables that are taken into consideration to evaluate the failure or barriers to entrepreneurship within the United Kingdom.
Potential entrepreneurs: In the current study potential entrepreneurs have been defined as those individuals who are permanent residents of the United Kingdom. The definition is general because the study aims to analyze the reasons behind why individuals do not persuade to take up entrepreneurship as a career option.
Entrepreneurs: Within this research entrepreneurs have been defined as those individuals who have either established a business in the past or is currently owning or managing a business by themselves or with others.
Age: The focus of this paper will be to analyze the factors influencing the age group from 23 to 65. The people that I will study will fall under this age category.
Geographical Location: The observation is based on individuals within London
Gender: Another variable is the gender factors. This paper will also analyze the current trends of the number of women and men that are potentially trying to start-up businesses and the current number of entrepreneurs within the country.
Motivation: This is a critical factor which will be explored as to what are the motivational levels of potential entrepreneurs.
General Attitudes: Which takes into considerations the feelings and behaviors of the sample population towards entrepreneurship
Current skills and knowledge of potential entrepreneurs.
Barriers: Any psychological or environmental obstacle which will hinder the decision making process of the individual to become an entrepreneur.
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