Enterprise and Small Business Principles

Local policy

For most small firms the local context is far more important than it is for larger firms. Small firms depend to a greater extent on the local labour market, local financial ser­vices and any sources of information and advice available locally. Because of lower absolute resources, thresholds for entry and lower market power, small firms usually have much less time for search and evaluation, so that the local context can be crucial to them. This also makes the general skill level, general role of banks, general level of information and general availability of advice more important to small firms. As a result, the role of national policy is in fact often the most crucial for SMEs, even if its effects are consumed by businesses chiefly through the local level.

At a local level, national and sectoral issues come together and are reinforced by the specific local conditions that determine how fertile the local environment is, both for new firm formation and for the development. Some geographical areas have a more positive supporting environment to market development than others. A good deal of analysis has gone into assessing policies that can improve local environments. In gen­eral, it has been found that the extent of existing entrepreneurialism and growth of small firms in an area is a strong stimulus to enterprise, along with occupational struc­tures related to commerce, services (rather than manufacturing) and to management and the professions. High rates of job loss can be strong ‘push’ factors, whilst long-term unemployment and high levels of employment in branch plants are usually impedi­ments. More general factors such as high levels of educational attainment, availability of skills, premises, local capital and the general business climate are also important in encouraging small firms to develop (Moyes and Westhead, 1990). Indeed, one of the strongest forces that can promote or impede small firms is the general institutional structure and capacity of an area (e. g. see Stohr, 1990; Bennett and McCoshan, 1993; Bennett and Krebs, 1994). This has led to the general conclusion, phrased particularly strongly by Sweeney (1987), that small firm development is as much a social as a tech­nological or financial phenomenon.

Various initiatives in Britain have sought to improve the local environment for small firms. Mainly these have been seen as supply-side approaches to overcome the market gaps outlined earlier. An early approach was the financial support by government grants and projects for a network of local Enterprise Agencies. From about 1980, these grew to a network of 400 agencies in 1994 across Britain, chiefly concerned with small business start-ups and immediate aftercare. Since 1995 these have been subsumed within Business Link and subsequently Regional Development Agencies (RDAs) (see below; and Bennett and Payne, 2000).

Local government throughout the 1980s was also a major agent in SME support, chiefly as a provider of information, sites and physical regeneration initiatives. Central government limits on local government running of companies restricted activities, but new local government initiatives continue to be announced and this has been given added support since 2001 by the role of the local government’s new local development powers. Many of local government SME actions are made in partnership with other agents such as local chambers of commerce. As a voluntary system, unlike the com­pulsory systems in France, Germany, Italy or Spain, membership of chambers of com­merce in Britain varies. Membership is about 8% of the total UK business population, but much higher among established SMEs, and about 23% for firms of 20-200 em­ployees. The chambers offer representation and lobbying, and also provide information and basic advice; export/import documentation, information and advice; foreign trade fairs and missions (for which they are an agent of the DTI); management training;

and employee training (via government contracts, for which they are now the main UK supplier in some areas).

In Scotland and Wales, development agencies were established in the 1970s and 1980s and continue to play a major role. Urban development bodies have sought to stimulate focused development in inner city areas since the 1980s. The Rural Devel­opment Commission was important in rural areas. These bodies have been the main agents administering the grants and other financial supports discussed earlier. They may also be important in land preparation and provision of premises, environment improvements and SME advice (particularly for minorities, ethnic and women’s groups, etc.).

The scene changed after 1990 with the establishment of local Training and Enterprise Councils in England and Wales and Local Enterprise Companies in Scotland. These were general-purpose bodies that took over the administration of many government SMEs grants and advice schemes. They were also the chief local agent of central gov­ernment to finance vocational training for the unemployed. There were 85 of these bodies in England and Wales and 22 in Scotland.

In the period between their launch in 1990 until their abolition in 2001, the Training and Enterprise Councils developed a wide range of small business activities. The most prominent were counselling and training, with a major emphasis on consultancy sup­port and specific advice to start-ups. Much of this was delivered through other agents under contract (Bennett and Krebs, 1994). Surveys showed the full range of activities to be very extensive, but often too broad and ill focused to make any major local impact. Partly as a result of these criticisms, the government launched a new initiative in 1993 of what became Business Link (see Section 4.12).

The scene changed radically again in 2001 with the launch of RDAs in England and greater powers devolved to the Scottish Parliament and Welsh Assembly. Business Link and most business development initiatives were then devolved to RDAs, with the result that different ‘business support’ strategies now operate in each English region, Scotland and Wales. The result is usually viewed as a rather fragmented structure. Various assessments of it have referred to a ‘patchwork quilt’, ‘chaos’, ‘labyrinth of initiatives’, a ‘muddle’ (Audit Commission, 1989, 1999; PIU, 2000; Treasury, 2002). The Better Regulation Task Force (2002b, p. 43) ‘struggled with the justification for so many bodies active on the ground. . . Our stakeholders struggled too. . . it will take more than protocols or pieces of paper to ensure close working’. Figure 4.2 sum­marises the range of government departments and agents, and their relative expendi­ture, seeking to help businesses, mostly smaller businesses.

A survey of the different organisational and funding structures is shown in Figure 4.3. This shows the different central and regional government departmental roles (across the top of the figure), separated for England, Scotland and Wales. From these flow dif­ferent funding programmes, which are supposed to be coordinated at regional level (RDAs, Scottish Enterprise, Highlands and Islands Enterprise, and Welsh Assembly/ Welsh Development Agency); in turn at local level specific delivery agents such as Business Link are again supposed to coordinate the different funding programmes, working with local partners (chiefly local government) and other agents (such as trade associations, chambers of commerce, etc.).