UK entrepreneurship: strong on start-up; weak on aspiration
24 April 2012
The 2012 global ranking of the entrepreneurial performance of countries (based on mid-2010 data) has placed the UK in joint 14th place, behind the US (1st) and Australia (2nd), and European countries including Sweden, Switzerland, Iceland, Denmark and Belgium.
The Global Entrepreneurship and Development Index (GEDI) compared the entrepreneurial characteristics of 78 nations, identifying the entrepreneurial strengths and weaknesses of their economies.
The Index researchers - a group from George Mason University, the University of Pécs and Imperial College Business School - suggest that the main issues that need to be addressed in the UK are encouraging individuals to invest in start-ups, and giving entrepreneurs easy access to finance. Their advice to policymakers is: address these bottlenecks if you want to see the UK keep pace with the rest of the world.
The GEDI analyses three measures, using a range of data to explore the entrepreneurial activities, aspirations, and attitudes of each country. The UK scores strongest - ranking 5th - for its level of start-up activity: the share of technology sector start-ups, the quality of the human resources in start-up firms and the share of start-ups in areas where not many other businesses are offering similar products.
It is, however, weak in its entrepreneurial aspirations, coming 12th in Europe and 30th overall, for the efforts of its early-stage entrepreneurs to introduce new products and services, develop new production processes, penetrate foreign markets, boost employee numbers, and finance their businesses using venture capital.
Sadly, the UK ranks in the bottom quarter globally for the number of individuals who have invested informally in other peoples’ start-ups over the past three years. Analysis suggests that the UK’s performance in this area was significantly affected by the financial crisis, although the rate of informal investment has subsequently increased.
The UK also languishes in the bottom quarter for the percentages of the population who personally know someone who has started a new firm; who perceive good opportunities to start a new firm in the area where they live; and who perceive entrepreneurship to be a good career choice.
So, where are we going wrong? The report’s authors believe that, as far as the UK is concerned, access to capital for start-ups and small and medium-sized enterprises (SMEs)is strangling progress. They say that even with recent policy initiatives designed to address this weakness, it will be crucial to examine access to finance, in particular, and, further, to look at how policies might be improved or adapted in light of the bottlenecks identified in the Index.
Imperial College Business School's Professor Erkko Autio says that while there doesn't seem to be anything fundamentally wrong in the formal support system, the UK could significantly improve its performance through well-targeted policy measures, especially those encouraging individuals to invest in start-ups.
"It is timely and important to review the entrepreneurial health of the UK," says Professor Autio. "Although weak signs of economic recovery are starting to appear in North America, the EU continues to feel the effects of the financial crisis. In the UK, the government faces the complex challenge of reducing debt while simultaneously promoting growth in the private sector. This set of conditions emphasises the potential of entrepreneurship as a mechanism to both restore the balance between public and private sectors as well as kick-start economic growth."
In reply, science minister David Willetts agrees that encouraging entrepreneurs to start and grow their business is vital to help rebalance and boost the UK economy, claiming the government is working with the private sector to help create an environment in which entrepreneurs can thrive and be successful.
He points to various initiatives designed to improve access to finance for SMEs through a range of non-bank lending channels, like the £100m of the £1.2bn Business Finance Partnership, which will be made available to entrepreneurial businesses through Capital for Enterprise Limited.
Mr Willetts also alluded to the National Association of College and University Entrepreneurs, with whom the government is currently working to increase the number of enterprise societies in academia that can offer real life business experience, plus a proposed £10m pilot for enterprise loans to mentor young people with bright ideas and provide them with access to small amounts of capital.
But what about the skills?
While funding seems to be the thrust of the GEDI report as far as the UK is concerned, little attention appears to have been paid to skills - particularly those that are of value to hi-tech start-ups. Oxfordshire's hotbed of science and technology R&D, Science Vale UK has now joined in a consultation on the issue, teaming up with Pera Training and a number of local companies to launch the first phase of a new higher apprenticeship scheme, which hopes to address the sector's severe skills shortage.
The new higher apprenticeship in Research and Development - the equivalent of a degree - will provide employees and young people with access to a nationally recognised qualification and new vocational career path in science, engineering and technology (SET).
A consultation - initially for the South and East, though a similar consultation is mooted for the Midlands and North - will highlight how the new higher apprenticeship will work, and how the package of skills offered in the programme can be fine-tuned for the benefit of local businesses - particularly SMEs.
The Science Vale Enterprise Zone is home to some of the newest and fastest growing businesses in high performance engineering, medicine and biotechnology; hopes are that the new higher apprenticeship along with other schemes will eventually lead to the creation of 8,000 jobs in this area alone.
Pera Training has revealed a significant gap in R&D skills between new knowledge generation and successful commercialisation, especially in the SET sectors. While R&D investment in the UK remains high, there are no vocational qualifications which specifically support R&D and only a handful of qualifications, which contain a small element of skills. A government sponsored report by SEMTA last year supports this conclusion.
Pera Training project manager, Steve Gledhill believes that by radically expanding the number of higher level apprenticeships, we will start to put practical learning on a level footing with academic study. “We truly believe the introduction of the R&D pathway within Pera’s framework will lead to significant uptake of higher level apprenticeships," he told the South and East group consultation last week.
“Our vision is to create a higher apprenticeship pathway in R&D, developed by leaders of technology and innovation, that will provide a platform for future students to pursue a personal and economically rewarding career spanning many advanced engineering and science sectors."
Guiding the young
And, finally, to recruitment. The proposed changes to schools’ careers guidance has lately been criticised by the Institution of Mechanical Engineers (IMechE), which believes it may lead to a shortage of people pursuing careers in engineering and thus hamper the UK’s economic recovery.
IMechE director of engineering, Colin Brown says the UK’s career advice system is "sorely lacking" and needs a funding boost to ensure talented young people can be steered into careers, which, as he put it: "are vital to the country’s future". Dr Brown claims the country is cutting funding and scrapping face-to-face counselling in schools; he is also worried that industry's lack-lustre involvement persists.
“We need the people in industry who are creating these jobs to provide careers advice, particularly given that many teachers and career advisors are unaware of the realities of working in different industries," he says. “It could prove hugely damaging to the country’s economy if we do not address the issue of substandard careers advice, with many industries losing out on employing talented individuals.”
With apologies for wheeling out a well-worn but important statistic one more time: the UK needs 31,100 new graduate engineers every year for the next five years in order to meet industry demand; STEM teachers, careers guidance counsellors and careers advisory agencies take heed.
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