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Cloud over enterprise must have a silver lining

SE’S failed birthrate strategy should be the spur to encouraging new entrepreneurs

 

LAST WEEK, Scottish Enterprise admitted that its business birthrate strategy had failed.

 

Targets set when the initiative was launched in 1993 were hopelessly optimistic. They predicted that Scotland would increase total business start-ups by 5% per annum, even though this was twice as many as had been created in the south-east of England - the UK’s fastest growing region - over the previous 13 years.

 

A variety of initiatives were tried and the result, as reported in a study by Professor Brian Ashcroft of the Fraser of Allander Institute (FAI), has been failure. The number of business start-ups has been falling. In 1999, there were 16% fewer businesses started in Scotland than in the previous year.

 

So what went wrong? Is it really as bad as it looks? It is rather difficult to tell and that, in itself is bad. The figures for business start-ups are gathered from banks (from bank accounts opened) and VAT registrations. We don’t actually know, for example, which of the “new” businesses are just subsidiaries of current ones, and we have no way of distinguishing between the small one-man companies (window cleaners and gardeners) and the ambitious high-growth technology enterprises.

 

It might even be that the drop in start~ups in 1999 was a good sign. It might be that many of the business registrations in previous years came about because people were unemployed and resorted to setting up as consultants. With the full employment in recent years soaking up such people, we probably should not complain.

 

So is it important that our business birth rate is low? Yes it certainly is. Scotland has a relatively small corporate sector, and although we have some genuine world class players such as the Royal Bank and Scottish Power, it is vital that we also have new blood coming through.

 

Just as the Royal Bank and Scottish Power have grown by acquiring overseas, Scottish companies are prey to the same forces. Meconic, acquired last week by Johnson Matthey, is just the latest to be lost from that small and dwindling band of Scottish quoted businesses.

 

And we can no longer depend on inward investment to create jobs in Scotland. The Motorola closure in Bathgate is just the tip of a rather unpleasant iceberg. Over the next few years, we can expect electronics manufacturing jobs to migrate to lower-cost economies such as in Eastern Europe.

 

Without the dynamic of new high-growth, home-grown businesses, Scotland is doomed to remain a branch factory economy, and our jobs and our futures will remain at the mercy of corporate headquarter decisions in Tokyo or Chicago.

 

So it is vital that new growth businesses are created and thrive herein Scotland.

 

Over the past few weeks, thousands of students have graduated from Scottish universities - how many of them are planning to set up their own business? Not many, I suspect, as we still don’t yet have a “culture of entrepreneurship” where a new business is valued. But what is there to help them?

 

It is not all bad news. Developments over recent years, such as business forums, the Entrepreneurial Exchange and Connect, have created a much better climate in Scotland for business creation. The Scottish Institute for Enterprise has established entrepreneurship courses for science and technology students in the universities. Two programmes set up to support young researchers - enterprise fellowships and business growth funds - have already created several ambitious university spin-out companies.

 

As the FAI report points out, it should not just be a numbers game. it is much more important to ensure that businesses are created which are innovative, address global markets and compete in leading edge sectors.

 

So, how to do it? Rather than burying this report, SE has decided that it needs to reset its targets. Over the next few months, it will be taking views on how to set the right targets and to ensure that the situation in Scotland improves in future. But it will be important also to recognise where Scottish Enterprise can help, and where it cannot

In most cases, the most appropriate help will come from the private sector. SE must concentrate on where it can make a difference, such as in improving the quality of entrepreneurship education and ensuring that the conditions are right for graduates and excellent university research to generate new Scottish companies.

 

Ian Ritchie is a director of Scottish Enterprise.

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