Introduction
Entrepreneurship plays an in important
role in economic growth and development and this is why it is important for
governments to promote it through the use of supporting policies. This is done
through legislation and generation of policies that regulate the conduct of
business in a business environment. Government policies impact every aspect of
business including access to funding, capacity building, creation of a healthy
operating environment and security of investments among others (Shariff and
Peou, 2010). In fact, past experiences have shown that governments can also
play an important role through demand creation where procurement laws are
modified to promote local and upcoming businesses (Michael and Pearce, 2009).
The experiences of start-up entrepreneurs in the UK are not unique: the
challenges are common around the world. Most entrepreneurial start-ups are
small businesses and government policies for promoting small businesses tend to
be applicable to promotion of entrepreneurship. The rationale for supporting
entrepreneurship lays in their ability to promote economic development. The
areas in which government support is highlighted include funding, capacity
building, demand creation, cost cutting and insulation in employment law, and
others (Michael and Pearce, 2009). This research examines the challenges faced
by entrepreneurs in the UK and discusses how government policy can be used to
not only solve the challenges but facilitate success in business.
Overview of government policies and
impact on entrepreneurships
Government affects economic growth and
development in very many ways. At the macro-economic level, governments play an
important role in influencing the level of inflation and liquidity using
monetary policies (Rong, Liu and Shi, 2011). This in turn influences the
availability of liquid cash in the economy hence reducing the price levels
within the economy and lowering probability of success for entrepreneurs. The
contrary is true in cases of recessions. In the global recession, the UK took
measures to insulate banks from bad debts (Roper, 2012). This enabled them to
continue lending hence making it possible for local demand for goods and
services to be restored. Even though this was a general approach for the whole
market, it was expected that entrepreneurs would equally benefit from the
measures. In countries like China, more proactive measures were taken to
promote local demand to insulate Chinese firms from the dwindling demand in
international markets (World Bank, 2013). Another example of government policy
and its impact on business is on taxation.
Taxation directly impacts the
probability of entrepreneurial success by reducing demand where consumers have
lower disposable incomes hence are forced to reduce their spending (Zainol and
Daud, 2011). This is in addition to the direct impact where a greater proportion
of the profits made are given up in form of taxes. Requirements for business
registration and operating licenses are also important factors to consider. Governments
that are out to promote entrepreneurship do so by facilitating ease of starting
by removing legal obstacles. Governments
can even provide incentives for entrepreneurs operating in certain fields to
encourage creativity and investments (Mahajan and Kamble, 2011). This comes in
form of tax reliefs and even funding for research and provision of subsidies.
Other government policies that are most relevant to challenges faced by small
businesses are explained in detail in the sections below.
Funding
Entrepreneurs in UK and elsewhere tend
to suffer from lack of funding. In most cases, entrepreneurs start off as small
businesses hence the rationale for linking entrepreneurship with small
businesses in the UK. A 2012 survey in the UK revealed that over 62% of small
businesses are owned by families (Department for Business and Innovation
Skills, 2012). Out of this, over 29% operate from their homes. This depicts the
cost saving mentality that is associated with the decision to avoid rent
expenditures and an indicator that funding may be a challenge. The challenge of
raising funds for investment and expansion is associated with the fact financial
institutions view them as a risk factor (Mahajan and Kamble, 2011). Many entrepreneurs
are yet to be developed to a level where their riskiness can be assessed using
the metrics established by banks and financial intermediaries. They tend to be
the only ones who know their fields of operation and the riskiness of the same
hence the inability of banks to make an objective decision (Zainol and Daud,
2011). This leaves them with sources such as savings and loans from friends
when starting their ventures. Such sources produce very little funding and this
curtails their ability to invest more or even expand.
By their definition, start-up
entrepreneurships are small going by the amount of funds invested, revenues realisable,
as well as the level of operations. In the UK, over 88% of the small businesses
operate from single site and this signifies the fact that their operational
capacities are still low (Department for Business and Innovation Skills, 2012).
This is a clear indicator that the businesses are underfunded and that they are
likely to need funding. Indeed, support for entrepreneurs by governments is
commonly interpreted to mean that governments should do their best to enable them
access finances (Rong, Liu and Shi, 2011). The UK government has in recent
years made efforts to establish equity funds to help and fund entrepreneurs. The
government also sets apart grants for start-ups which are being set up in
certain industries to encourage innovations.
The government efforts have however been
faced with a number of challenges. First among them is the willingness of the entrepreneurs
to take loans to expand their businesses. Even in situations where funds may be
available, entrepreneurs may be unwilling to take the risk for fear of losing
control of their businesses in the event that they are not able to pay back the
loans (World Bank, 2013). The same challenge is faced in the issue of finding
additional investors who are willing to buy equity into the businesses. Entrepreneurs
who are not willing to give up part ownership of their businesses tend to
overrule this option (Michael and Pearce, 2009). This negates efforts by
government to facilitate additional investments. The manner in which the entrepreneurships
are constituted is such that the owners are well acquainted with each other and
may therefore be reluctant to allow more investors into their businesses
(Mahajan and Kamble, 2011). Nevertheless, the larger proportion is that which
needs funding but is not able to access it. This is why the efforts by
government are justified.
Despite the many efforts made by
government to fund entrepreneurships, its efforts are viewed as inadequate and
market practitioners have been calling on it to do more to promote businesses.
One of the additional means that have been suggested is to not only provide
guarantees for banks to take risks in funding small businesses but also to
engage in capacity building to get the entrepreneurs able to attract investors
both locally and internationally.
Capacity building
The emerging businesses have various
capacity challenges ranging from managerial, administrative, and professional
knowhow. Many of those who start businesses do so but with inadequate knowledge
about business management (BMG Research, 2012). Not many entrepreneurs have
business management knowhow. This is mostly the case where entrepreneurs are experts
in a given area of specialisation usually not related to business management.
For instance, a technology expert producing software may have the idea on the
products to make and sell but may not have the knowhow needed to market the
products or to create a stable business model that could see the venture grow
in the future (Mullen, 2012). Business management skills can also be extended to
mean the ability to employ strategic management skills to excel in the
increasingly dynamic and competitive business environment.
In regards to strategic management and
the formation of effective strategies for competition, the poorly funded entrepreneurships
are unable to gain the kind of intelligence they need. Market research can be a
costly matter requiring one to thoroughly analyse the characteristics of a
market and be able to predict with accuracy how the market would react to
different products and product characteristics (OECD, 2004). Research
capabilities and the technical knowhow to translate information collected into
business management intelligence to steer good decision making is often not
available to many of the start-ups. This makes it necessary for a mechanism to
be found through which the management capabilities of the businesses can be
enhanced.
The government of the UK has been
accused of not doing enough to improve the capacity of the entreprenuers in
terms of facilitating market research. As a matter of fact, the research
conducted by government only tends to be at the macro level and not very useful
for business organisations that intend to make decisions on strategic and
operational aspects of the businesses (Roper, 2012). The most common source of
mentorship has been from private consultants who do so at a fee. The seminars
and workshops that are conducted to equip business owners over their managerial
skills should be improved and made more frequent to equip them to develop more
competitive business models.
The other issue of capacity arises in
terms of the ability of the entrepreneurs to raise funds. Even though there may
be challenges in terms of the business worth which may affect their credit
rating, there are many more cases of lack of competence in providing relevant
information and inspiring inflow of investments (Urwin, 2008). It is not
uncommon to find potent entrepreneurial outfits that are denied loans or are
unable to get additional investors since they are not able to package their
businesses convincingly (The Crown, 2011). For a person with a good background
in business management, coming up with good business plans may not be
difficult. But this knowledge is not universal and training may be needed for those
who do not have the knowhow (Urwin, 2008). The investors are primarily
concerned with gauging whether their investments will pay off or not. This
needs to be captured. The role that government needs to play in this regard is
to promote trainings for entrepreneurs as is the case with the search for
managerial skills. Government policy can also be used in the promotion of
international investments where foreigners can identify businesses and invest
in them with ease (Robson and Bennett, 1999).
More importantly, entrepreneurs should be trained on how to attract
investors to their businesses. The training policy also applies to the
challenge of technology and adopting in the rapidly changing business
environment.
In recent years, the internet and other crucial
technologies have been emerging that have radically transformed the business
environment. The ability of businesses to survive in any environment depends on
their ability to adapt to external stimulus (Zainol and Daud, 2011). This
implies the need for continuous training. Technologies around the world are
evolving so fast that one is always at the danger of being obsolete. Some of
these changes may be hard to keep up with and this is where the need for a
sensitisation mechanism comes up (Williams and Huggins, 2013). Governments can support
entrepreneurs by organising exposure to help the entrepreneurs master such
emerging technologies. Business incubators can be established by government
where entrepreneurs are coached until they are able to master the technologies
in question (Roper, 2012). In addition,
further measures can be applied such as providing subsidies for trainings to
encourage those who’d have avoided consultations due to their high cost.
While there have been some notable steps
by government to promote capacity building, there has been an unexpected
barrier in the efforts. This barrier has been the reluctance by the
entrepreneurs to take up the training opportunities available to them. Surveys
on the entrepreneurs in the UK indicate that over half of them are not
interested in training when asked about their attitude towards mentorship in
business (Williams and Huggins, 2013). This lack of interest is the biggest
barrier in educating them to be better managers, better investors, and more
effective in making their businesses competitive. This means that any
government effort to train small business owners must begin with a
sensitisation exercise.
Competitive landscape
One of the ways in which governments
promote small businesses is through policies that make it easier for them to
compete in the market. The small businesses get into the market faced with
stiff barriers for entry posed by their more established rivals in the market
(Pickernell, 2013). Besides, limiting their costs of operations makes it easy
for young businesses to make savings and grow. The promotion of the small
businesses can take various forms including adopting a proactive tax policy,
exemptions from statutory charges, exemption from employment laws, and others.
The cost of employment is influenced
directly by government policy. Where the minimum wage levels are higher, the
cost of running the businesses is higher and when it is low, the cost of
running business is low. Government can directly influence the cost of operating
businesses by allowing the smaller businesses to avoid the minimum wage
requirements (Han and Benson, 2010). This would lower their operating costs.
Moreover, there are governments such as the Australian government that
insulates businesses with less than 100 employees from being sued over unfair
dismissal claims. This insulation protects such businesses from the costly
suits that could even render them bankrupt (Drine and Grach, 2012). In Germany
and Portugal, small businesses are exempted from social security costs while
some other governments are known to exempt small businesses from minimum wage
requirements (Ndedi, 2013). The same could be said of the right of employees to
join unions and embrace collective bargaining. Where such rights are entrenched,
chances of forcing employers to pay more is higher hence the rise in operating
costs. These measures are an illustration of how government policy can directly
lower the cost of operation of small businesses and enable them to be more
competitive.
In addition to the attempts by
government to lower operating costs for the small businesses, direct efforts
can be made to create demand for them. In countries such as the UK, good
governance principles in terms of procurement are entrenched in both the corporations
and the local governments (Drine and Grach, 2012). Many of the local
governments in the UK have embraced procurement rules that allow them to
procure goods and services from small companies in their localities. By
reducing the number of requirements needed for organisations to be prequalified
in the procurement processes, small businesses are able to compete for
contracts and win them.
In addition to the creation of demand,
governments promote entrepreneurs by embracing rules that guard them from
anti-competitive tendencies of the larger corporations. By virtue of their size
and poor experience, the businesses are vulnerable and can easily be
outcompeted in the market (Shariff and Peou, 2010). This challenge is only
overcome if anti-competitive laws are entrenched and enforced vigilantly.
Safeguards against abuse of market leadership by the bigger corporations ought
to be applied. In the UK, the law prohibits anti-competitive behaviour by
market leaders such as dumping where larger corporations make use of their
financial strength to reduce their prices below their operating costs to drive
competitors out of the market (Shariff and Peou, 2010). The same applies to
prohibitions from the practice of locking out competitors out of distribution
channels using manipulated and prohibitive distribution contracts. With such
laws in place, there is always the chance that the small businesses can
establish themselves and excel in the market.
Further recommendations for
government policy
As has been mentioned in the preceding
sections, government policy plays an integral part in promoting business. Entrepreneurial
start-ups are often viewed as vulnerable by virtue of their weak position in
the market (Preuss, 2011). They are however very crucial as they are the ones
that drive innovations. Many of the excelling industries started as entrepreneurships
whose owners were barely knowledgeable in anything outside their areas of
expertise. The entrepreneurships should therefore be nurtured. While the main
ways in which the businesses can be promoted are known, the level of apathy
among the small business owners tends to be the main barrier against efforts to
enable them tom grow their businesses (Ndedi, 2013). Any additional measures by
government should be geared towards helping them overcome the apathy and
embrace the efforts that can help them grow their businesses, and by extension,
the economy.
The first source of apathy is the
question of loss of control as the reason why owners of small businesses tend
to avoid searching for additional investments. The investors come in with a
stake expecting to have a share of the ownership of the businesses and this is
in direct conflict with the desires of many business owners (Drine and Grach,
2012). Government policy should factor in these fears while pushing ahead with
the idea of making them more successful to promote entrepreneurship and
organisational growth. By investing more in equity funds and business
incubation initiatives, governments can have more funds availed to businesses
while they are made more capable of steering their businesses to success (Drine
and Grach, 2012). This element of apathy can also be resolved through
sensitisation.
The fact that many of the small business
owners do not appear interested in mentorship is proof of the fact that they do
not appreciate the potential of their businesses. Unfortunately for government
agencies, there exists asymmetry of information where many of the small
business owners may be having knowledge about their businesses that is unique
(Department for Business and Innovation Skills, 2012). This means that they may
be the only ones with an understanding of the businesses and their potential. Nevertheless,
studies can be made through designated incubators to help the business owners
to develop their business ideas. It is only by appreciating the potential of
the businesses that the owners would appreciate the fact that they need to know
more about the business and the relevant industry or sector (Pickernell, 2-13).
Once the curiosity has been roused, the training programs can set in and
achieve the desired goals.
In addition to overcoming apathy, there
needs to be efforts to make it easy for the small businesses to operate. This
can be done by lowering operational thresholds such as the case with Australia
where there is less emphasis on cases of unfair dismissal for the small
businesses (World Bank, 2013). Similarly, statutory provisions such as
insurance and other costly elements of working environment provisions can be
reviewed to promote business. In the end, government policy to promote business
must focus on four fronts: creating a good competitive atmosphere, capacity
building, availing funding, and providing cost cutting avenues.
Conclusion
Government policy is very crucial in supporting
entrepreneurships. It shapes the competitive landscape and also has a direct
impact on the cost of business. Government policy can also influence directly
or indirectly the ability of businesses to obtain investment funds and loans.
This is why government policy is crucial in overcoming the challenges faced by
small businesses. Lack of funds and lack of capacity can be resolved through
training, provision of grants and loans, and the promotion of investment
awareness programs. Government can also directly create demand by requiring
local authorities to purchase from the small businesses. In the end, good
government policies can be very effective in making entrepreneurs successful in
the market.
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