/Enterprise_(version_2) by Northwest Regional Development Agency

Enterprise Evidence Base RS2010

Regional Intelligence Unit NWDA Renaissance House Centre Park Warrington WA1 1XB Tel: 01925 400 291

Enterprise

This report is published by the Regional Intelligence Unit as part of its continuing commitment to inform the sustainable economic development of the Northwest of England. It has been produced by the NWDA Research Team, and whilst ever effort has been made to ensure the accuracy of the material in this report the NWDA or the RIU cannot accept any responsibility for decisions based on the material that follows Further Information If you require further information on this report, please contact: Doug Watts Senior Business Analyst doug.watts@nwda.co.uk 01925 400 566

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Enterprise 1. 2.

Intro/summary ....................................................................................................................................................6 What does the evidence say?...........................................................................................................................7 Awareness/Aspirations and Attitudes towards starting a business â&#x20AC;&#x201C; EXECUTIVE SUMMARY...................................7 Awareness/Aspirations and Attitudes towards starting a business...............................................................................7 Entrepreneurial activity within the Northwest ..............................................................................................................10 Sub-regional entrepreneurship....................................................................................................................................11 Entrepreneurial People ...............................................................................................................................................13 Gender differences in the Northwest...........................................................................................................................13 Age differences in the Northwest ................................................................................................................................14 Ethnicity and mobility in the Northwest .......................................................................................................................15 Social Entrepreneurship..............................................................................................................................................15 HEIs and Enterprise ....................................................................................................................................................17 3. Business starts/closures and survivability...................................................................................................19 EXECUTIVE SUMMARY ............................................................................................................................................19 Business starts ............................................................................................................................................................19 Business starts per 10,000 (16+ population) ..............................................................................................................19 Cheshire East..............................................................................................................................................................21 Cheshire West.............................................................................................................................................................22 Greater Manchester ....................................................................................................................................................22 Lancashire...................................................................................................................................................................24 Cumbria.......................................................................................................................................................................25 Merseyside ..................................................................................................................................................................26 Rural areas..................................................................................................................................................................26 Registrations and de-registrations ..............................................................................................................................27 De- registrations in rural areas....................................................................................................................................30 Survival rates...............................................................................................................................................................31 Rural Areas .................................................................................................................................................................32 Characteristics of over and under performing districts................................................................................................33 4. Business landscape ........................................................................................................................................37 EXECUTIVE SUMMARY ............................................................................................................................................37 Business landscape ....................................................................................................................................................37 Self-Employed*............................................................................................................................................................40 Micro businesses (1-9 employees) .............................................................................................................................42 Small businesses (10-49 employees) .........................................................................................................................43 Medium sized businesses (50 â&#x20AC;&#x201C; 249 employees) .......................................................................................................46 Large businesses (250+ employees) ..........................................................................................................................48 5. Knowledge-based businesses ...........................................................................................................................50 6. Business Relocation ..........................................................................................................................................53 Business movement in and out of the Northwest........................................................................................................53 7. Headline perceptions of the Northwest..............................................................................................................59 8. Bibliography .......................................................................................................................................................61

Table of Figures

Figure 1: Perceived skills to start a business .................................................................................................8 Figure 2: Perception of start-up opportunities ................................................................................................8 Figure 3: Knowing an entrepreneur ................................................................................................................9 Figure 4: Fear of failure ..................................................................................................................................9 Figure 5: Expect to start a business .............................................................................................................10 Figure 6: Entrepreneurial activity within the Northwest ................................................................................11 Figure 7: Early Stage Entrepreneurial Activity NW & UK 2002-8 .................................................................11 Figure 8: Sub-regional entrepreneurial activity within the Northwest ...........................................................12 Table 1: Attitudes and perceptions of entrepreneurship by sub-region ........................................................12 Figure 9: Early Stage Entrepreneurial Activity by LAD 2002-8.....................................................................13 Figure 10: Early stage Entrepreneurial Activity by Gender...........................................................................13 Figure 11: Early stage Female Entrepreneurial Activity 2002-8 ...................................................................14 Figure 12: Early Stage Entrepreneurial Activity by age ................................................................................14

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Enterprise Figure 13: Early Stage Entrepreneurial Activity by ethnicity.........................................................................15 Figure 14: Social entrepreneurship across the UK regions ..........................................................................16 Figure 15: Social Entrepreneurial activity by sub region ..............................................................................16 Figure 16: Social Entrepreneurship by age ..................................................................................................17 Table 2: Business starts per 10,000 (16+) ...................................................................................................20 Figure 17: Business starts per 10,000 (16+) ................................................................................................20 Figure 18: Business starts per 10,000 population (16+) Cheshire East .......................................................21 Figure 19: Business starts per 10,000 population (16+) Cheshire West ......................................................22 Figure 20: Business starts per 10,000 population (16+) Greater Manchester..............................................22 Table 3: Business starts per 10,000 (16+) Greater Manchester ..................................................................23 Figure 21: Business starts per 10,000 (16+) Lancashire..............................................................................24 Table 4: Business starts per 10,000 (16+) Lancashire.................................................................................25 Figure 22: Business starts per 10,000 (16+) Cumbria..................................................................................26 Figure 23: Business starts per 10,000 (16+) Merseyside.............................................................................26 Figure 24: Business starts per 10,000 (16+) in rural areas ..........................................................................27 Figure 25: Registrations v de-registrations (sub-region) 2007 .....................................................................28 Table 5: Registrations v De-registrations by sub region...............................................................................28 Figure 26: Business de-registrations per 10,000 by sub-region ...................................................................29 Table 6: GVA per head by sub-region ..........................................................................................................29 Figure 27: Registrations v De-registrations (per 10,000 16+) by sub region 2003-2007..............................29 Table 7: Churn rate and GVA/head ..............................................................................................................30 Figure 28: De-registrations per 10,000 (16+) in rural areas .........................................................................30 Figure 29: Registrations v De-registrations per 10,000 (16+) in rural areas ................................................31 Figure 30: 12 month Survival rates...............................................................................................................32 Figure 31: 36 month survival rate .................................................................................................................32 Figure 32: 12 month survival rates in rural areas .........................................................................................33 Figure 33: 36 month survival rates in rural areas .........................................................................................33 Table 8: Over performing districts ................................................................................................................35 Table 9: Under performing districts ..............................................................................................................35 Figure 34: Percentage share of all enterprise in the Northwest ...................................................................38 Figure 35: Percentage increase in businesses from 2001 to 2007 ..............................................................38 Figure 36: Percentage share of turnover......................................................................................................39 Figure 37: Percentage increase in turnover .................................................................................................39 Figure 38: Percentage share of self-employed by region.............................................................................40 Figure 39: Percentage increase in the self-employed by region 2001 - 2007 ..............................................40 Figure 40: Percentage growth in turnover of the self-employed by region 2001 â&#x20AC;&#x201C; 2007 ..............................41 Figure 41: Percentage in employment who are self-employed by sub-region..............................................42 Figure 42: Percentage share of micro businesses by region in 2007...........................................................42 Figure 43: Percentage growth of micro businesses by region 2001 â&#x20AC;&#x201C; 2007.................................................43 Figure 44: Percentage growth in turnover of micro businesses by region 2001 - 2007 ...............................43 Figure 45: Percentage share of small businesses by region in 2007 ...........................................................44 Figure 46: Percentage growth of small businesses by region 2001-2007....................................................44 Figure 47: Key concerns and priorities of small business ............................................................................45 Figure 48: Percentage growth of turnover in small businesses by region 2001 - 2007................................46 Figure 49: Percentage share of medium businesses by region in 2007.......................................................46 Figure 50: Percentage growth in medium sized businesses by region 2001-2007 ......................................47 Figure 51: Percentage growth in turnover of medium sized businesses 2001-2007....................................47 Figure 52: Percentage share of large businesses by region in 2007 ...........................................................48 Figure 53: Percentage growth in large businesses by region 2001 - 2007 ..................................................48 Figure 54: Percentage growth in turnover of large businesses by region 2001-2007 ..................................49 Figure 55: Knowledge Economy Percentage Share in the Northwest 2003-7 .............................................51 Table 10: Percentage growth in Knowledge-based businesses in the regions 2003-7 ................................51 Table 11: Knowledge-based business performance by individual sector in the Northwest 2003-7..............52 Figure 56: Net of gain of businesses from other parts of the UK..................................................................53 Figure 57: Net gain of businesses in the Sub-regions..................................................................................54

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Enterprise Figure 58: Reasons for business relocation .................................................................................................54 Figure 59: Movement of businesses by size ................................................................................................55 Figure 60: Movement of businesses by sector .............................................................................................56 Figure 61: Net movement of businesses between the NW and the UK .......................................................57 Figure 62: Number of businesses moving out of the Northwest by industry (as a percentage of all businesses in the industry) ...........................................................................................................................57 Figure 63: Intra-region movement of businesses by region .........................................................................58 Figure 64: Number of businesses moving within the Northwest by sector ...................................................58 Figure 65: Assets of the Northwest ..............................................................................................................59

5 Regional Intelligence Unit

Enterprise The Regional Intelligence Unit has developed in preparation for the new Regional Strategy a series of â&#x20AC;&#x153;evidence papersâ&#x20AC;?. The following is one of these papers. They are based on the factors in the current Regional Economic Strategy with a small number of additional ones. The purpose of the papers is to contribute to an independent, consistent evidence base, which will enable the region to demonstrate flow through from evidence to issue, in the development of the Regional Strategy. This will begin the debate on developing possible action and outputs, to have an outcome on regional sustainable economic performance. The function of these papers is to cover major indicators (building on RES monitoring) and evidence, which underpins current thinking and highlight any new research. Some papers are introductory papers which highlight evidence being developed at the moment within the region. The purpose is to be a first draft to stimulate debate and discussion, in developing an approach to formulating a new single strategy for the region. We expect these papers to change and evolve with the discussion, either in content, coverage or relevance of topics going forward. This is the starting point, and we will welcome all input through the consultation phase.

Intro/summary

1.1

Enterprise has a critical role to play in a dynamic and flexible economy. New enterprises drive productivity growth by applying competitive pressure in the market place, bringing forward new products, and raising the incentives for established businesses to invest, innovate and seek efficiency and quality improvements. Enterprise also plays an important role by generating employment and contributing to economic regeneration and social cohesion. If society is not supportive of entrepreneurs and their activities, fewer people will be prepared to take risks in business that have the potential to lead to large rewards.

1.2

The purpose of this evidence paper is to provide an overview of enterprise within the Northwest compared to the England average and comparator regions. The structure of this paper replicates the enterprise journey; awareness, aspirations, attitudes, ability and action. Each aspect replicates an essential component towards creating a hot bed of entrepreneurial activity from which businesses can survive and thrive. This paper will supply evidence against each aspect with an overview at the start describing the significance of this factor in the region. Please note that all data provided by Office for National Statistics is Crown copyright material and is reproduced with the permission of the Controller of HMSO. All analysis is prepared by the NWDA Research Team.

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Enterprise 2.

What does the evidence say? Awareness/Aspirations and Attitudes towards starting a business – EXECUTIVE SUMMARY 

41.4% of Northwest respondents to the GEM survey believe they have the skills to start a business.



Only 25.6% of respondents to the GEM survey believe the Northwest has good start up opportunities.



Only 22% of Northwest respondents know an actual entrepreneur.



38.5% of Northwest respondents fear failure with regard to establishing a business.



Entrepreneurial activity was highest in Cheshire at 7.1%.



The greatest attrition between Total Entrepreneurial Activity (TEA) and Established Business Ownership (EBO) was in Greater Manchester.



Women were less than half as likely to be thinking of establishing a business compared to men.



Rural entrepreneurship in the Northwest was equal to that of the UK at 7.7%.



Urban areas in the Northwest are slightly less entrepreneurial than the UK as a whole



Entrepreneurship in the 35-44 year old age group is higher in the region than it is in the UK (7.5% compared to 6.7%).



Mixed ethnic origins, other Asian (non Indian sub-continent) and Black African or Caribbean are substantially more entrepreneurial than their white male counterparts.



In 2006 the Northwest had one of the highest rates of early stage social entrepreneurial activity (SEA) in the UK at 3.4%.



Greater Manchester appeared to have the highest rate of social entrepreneurship at 4.9% compared to 2% in Cheshire.



35-44 year old age group was the predominant group of social entrepreneurs.

Awareness/Aspirations and Attitudes towards starting a business 2.1

Attitudes and perceptions towards starting and growing a business is an important indicator insofar as it affects the likelihood of that individual becoming an entrepreneur. The following tables come from the Global Entrepreneurship Monitor (GEM) 2006, 2007 and 2008 which, quantifies for the Northwest the important attributes influencing an individual’s decision in establishing a business. This report is largely based on a household survey of the adult population conducted for the UK as a whole and for the Northwest region. It is important to understand this is the respondents own perception of their abilities.

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Enterprise Figure 1: Perceived skills to start a business 60 50

2006 2007

2008

20 10

U K

Ea st

Lo nd on En gl an d So ut h Ea st So ut h W es t Yo rk sh ire N or th W es Ea t st M id la W nd es s tM id la nd s N or th Ea st

Source: GEM 2006/7/8 â&#x20AC;&#x201C; Northwest Report

2.2

Attaining the correct skills in order to start a business is both fundamental to whether you chose to become an entrepreneur as a career and how long as a business you survive for. Figure 1 demonstrates perception amongst prospective entrepreneurs in the Northwest with regard to the level of skill required to start a business. In 2006 this was low at 44.7% increasing to 47.5% in 2007 before declining to 41.4% in 2008. This figure is significantly lower than the more entrepreneurial South East and London (45.5% and 51.7% respectively). Of more concern is the dramatic fall across all regions in the perception of skills, knowledge and experience to start a business. London is the only region, since 2006, which has seen an increase in perceived skills despite a fall from 2007. Figure 2: Perception of start-up opportunities 50 45 40

35 30

2006

2007

2008

15 10 5

U K

Lo nd on En gl an d So ut h W es t Yo rk sh ire N or th W Ea es t st M id la nd s N or th Ea W es st tM id la nd s Ea st

So ut h

Ea st

Source: GEM 2006/7/8 â&#x20AC;&#x201C; Northwest Report

2.3

In addition to skills, opportunities from which young start up businesses can capitalise on must be abundant for them to survive. Figure 2 captures the perception amongst prospective entrepreneurs with regard to good start-up opportunities. The South East and London in 2008 were perceived to offer the best opportunities for start-up businesses. The Northwest in comparison underperformed with a score of 25.6%. Once again the severe deterioration of perceived opportunities is of significant concern and could have been an early indication of the current economic downturn.

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Enterprise Figure 3: Knowing an entrepreneur 35 30 25 2006

2007 15

2008

10 5

K U

So ut h

Ea st Lo nd on So ut h W es Yo t rk sh Ea i re st M id la nd s Sc ot W la es nd tM id la nd N s or th W es N t or th E Ea as st t En gl an d

Source: GEM 2006/7/8 â&#x20AC;&#x201C; Northwest Report

2.4

Anecdotal evidence suggests the stimulus from which an established entrepreneur can give to a potential entrepreneur choosing to embark on such a career is inspiring. Shared experiences, involving lessons learned and hot tips eliminate fear of failure and turns potential entrepreneurs into actual entrepreneurs. Figure 3 clearly demonstrates the Northwest as one of the worst performing regions when it came to prospective entrepreneurs knowing actual entrepreneurs. The only region to have seen a consistent increase with regard to this attribute was London. Figure 4: Fear of failure 50 45 40

35 30

2006

2007

2008

15 10 5

K U

W es tM id la nd s N or th Ea st Lo nd Ea on st En gl Ea an st d M id la nd So s ut h W es N t or th W es So t ut h Ea st Yo rk sh i re

Source: GEM 2006/7/8 â&#x20AC;&#x201C; Northwest Report

2.5

Predictably, taking into account the previous under performing factors, confidence with regard to succeeding in establishing a business in the Northwest was low, as shown in Figure 4. Those fearing failure in the Northwest increased from 37% in 2006 to 38.5% in 2008. This increase in fear of failure is not unique to the Northwest and again could be attributed to an early indication of the current downturn in the economy.

2.6

Many individuals who wish to start their own business are put off due to fear of failure or uncertainty about how to start. Despite these fears, there is a wealth of free information, advice and support

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Enterprise available locally and online to assist promising entrepreneurs on their journey to becoming an entrepreneur. More emphasis is needed on ensuring these fears are relieved amongst individuals wishing to start their own business by connecting them with the relevant information, experiences and role model. 2.7

Figure 5 has captured the year on year change, between 2002 and 2008, of the percentage of people expecting to start a business over the next three years. In 2008 4.1% of adults in the Northwest expect to start a business within the next three years compared to 5.2% in the UK. This represents a significant fall since 2005, when it was the same as the UK average. It is now only slightly above the level in 2002 (3.4%). Figure 5: Expect to start a business

% of Non-Entrepreneurial Population

North West

UK average

8% 7% 6% 5% 4% 3% 2% 1% 0%

2002

2003

2004

2005

2006

2007

2008

Source: GEM 2006/7/8 â&#x20AC;&#x201C; Northwest Report

Entrepreneurial activity within the Northwest 2.8

It is important to understand the levels of actual entrepreneurial activity at a sub-regional level. Figure 6 does this by showing Total Entrepreneurial activity (TEA) and Established Business Owners (EBO) i.e. the level between those thinking of starting a business to those who have actually established a business. The relationship between TEA and EBO is used by GEM to illustrate a proxy survival ratio for early stage entrepreneurial activity beyond three and a half years. Where TEA is higher than EBO it suggests attrition between the earliest stages of setting up a business and becoming an established businesses. The Northwest has identical TEA and EBO rates suggesting that early stage entrepreneurial activity â&#x20AC;&#x153;replacesâ&#x20AC;? existing business stock and as a result has average levels of churn. This is slightly different from the situation in 2007 when EBO rates were lower than TEA rates in the Northwest, suggesting higher attrition levels.

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Enterprise Figure 6: Entrepreneurial activity within the Northwest 7 6 2006 TEA

2006 EBO 4

2007 TEA 2007 EBO

2008 TEA 2

2008 EBO

1 0 North West

Source: GEM 2006/7/8 â&#x20AC;&#x201C; Northwest Report

2.9

Figure 7 shows trends in TEA rates of the Northwest and the UK between 2002 and 2008. Looking at the 2002-2008 period we can now see an increase in early stage entrepreneurial activity in the Northwest from 4.4% in 2002 to 5.5% in 2008. However, this increase over the seven years is not statistically significant. The level of early stage entrepreneurial activity in the Northwest has tracked the UK trend very closely until 2005 since when there has been a convergence as the UK rate declined slightly. Figure 7: Early Stage Entrepreneurial Activity NW & UK 2002-8 North West

UK average

% of Adult Population

7% 6% 5% 4% 3% 2% 1% 0% 2002

2003

2004

2005

2006

2007

2008

Source: GEM 2006/7/8 â&#x20AC;&#x201C; Northwest Report

Sub-regional entrepreneurship 2.10 It is important to understand the levels of entrepreneurial activity at a sub-regional level. Figure 8 overleaf does this by showing Total Entrepreneurial activity (TEA) and Established Business Owners (EBO) from GEM 2007. As you can see levels of entrepreneurial activity are highest in Greater Manchester at 5.7%. This compares to 4.2% in Lancashire, 4.1% in Cumbria and nearly 5% in Merseyside. 2.11 The greatest attrition between TEA and EBO was in Greater Manchester (where EBO was 2.9%). The highest level of EBO was in Cumbria, at 6%, possibly reflecting the dominance of the rural established economy in agriculture and tourism. It is essential we understand why, despite entrepreneurial activity being higher in Greater Manchester than the Northwest average and

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Enterprise practically equal to the UK average, this does not equate into Established Business Owners, which is in fact the lowest of all the regions. Figure 8: Sub-regional entrepreneurial activity within the Northwest Entrepreneurial Activity within the North Wes t

%of adult population

7.0 6.0 5.0 4.0

TEA

3.0

EBO

2.0 1.0

Source: GEM 2007 â&#x20AC;&#x201C;

U K

W es t N or th

M er se ys id e

La nc as hi re

C G um re br ta er ia M an ch es te r

C he sh ire

0.0

Northwest Report

2.12 Table 1 demonstrates attitudes and perceptions of entrepreneurship by sub-region. Individuals in Greater Manchester were significantly more likely to expect to start a business over the next three years compared to Cumbria. No one sub-region was consistently more negative or more positive, but Cumbria possessed the lowest attitudes for expecting to start, knowing an entrepreneur and having the skills to start a business. Across the sub-regions all attitudinal and perception responses were below the average for the UK.

Cumbria

Greater Manchester

Lancashire

Merseyside

Expect to start up in the next 3 years Know Entrepreneur Good start up opportunities Have skills to start a business Fear of failure prevents start

Cheshire

Table 1: Attitudes and perceptions of entrepreneurship by sub-region

6.9 27.1

3.7 18.5

8 25.4

4.7 23.5

5.9 18.3

6.4 23.5

7.8 27.2

44.1

37.7

35.9

30.1

34.6

36.8

47.2

40.6

42.5

48.6

44.4

44.7

49.6

38.4

37.3

39.8

32.6

34.5

35.8

Source: GEM 2007 â&#x20AC;&#x201C; Northwest Report

2.13 Given the relatively small sample size in each annual survey, GEM 2008 decided to pool the 20022008 datasets to allow analysis at the level of the 43 Local authority districts (LADs) in the region. Overall, GEM had a sample size of 10,400 with on average 240 respondents in each LAD. 2.14 Figure 9 shows the distribution of the TEA rate across the 43 LADs in the Northwest region (200208). The range was wide from just under 9% in Hyndburn to less than 1% in Ellesmere Port (0.85%). Manchester and Liverpool perform differently with Manchester having almost twice the level of early stage entrepreneurial activity: 4.3% compared to 2.6% - a noticeable widening in the gap compared to the 2007 results.

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Enterprise Figure 9: Early Stage Entrepreneurial Activity by LAD 2002-8

Source: GEM 2008 â&#x20AC;&#x201C; Northwest report

Entrepreneurial People 2.15 Demand-side policy approaches in stimulating entrepreneurial activity needs a robust picture of the people who are likely to become entrepreneurs. This section examines entrepreneurial activity in the Northwest by, gender, ethnicity, age, educational background land labour market status. Gender differences in the Northwest 2.16 A policy priority across the UK is to encourage more women to set up businesses and to see enterprise as means of engaging in the labour market. Figure 10 illustrates the levels of early-stage entrepreneurial activity (TEA) by gender in the UK regions in 2008. Figure 10: Early stage Entrepreneurial Activity by Gender Male

Female

10.00% 9.00%

7.00% 6.00% 5.00% 4.00% 3.00% 2.00% 1.00%

U K

E E as as to t fE ng la nd

W al es

N o rt h

E as t M id la nd s

S ou th

W es t

Lo nd o n N o rt h W es t S o ut h W es E as t tM id la nd s

S co tla nd & H um be r Y or ks

Ir el an d

0.00%

N or th er n

%of Adult Population

8.00%

Source: GEM 2008 â&#x20AC;&#x201C; Northwest report

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Enterprise 2.17 The Northwest in 2008 had a slightly below average level of TEA amongst women at 3.2% compared with the average for the UK of 3.3%. Female early stage entrepreneurial activity was 41% of male activity (TEA rate of 7.8%) in the Northwest, which was lower than the UK average of 49% and, perhaps more importantly, lower than in 2007 when it was 47%. The gender gap in the Northwest means that for every one hundred men who start a business, forty-one women will be starting up. 2.18 It is also important to look at any change over time. GEM cautions against this trend being used in any loose form of policy evaluation of the effectiveness of initiatives designed to increase the involvement of women in new venture creation. Despite this it does give an indication of how the labour market is changing at a regional level and may be used to encourage more women into entrepreneurship. Womenâ&#x20AC;&#x2122;s early stage entrepreneurial activity in the UK regions since 2002 is illustrated in Figure 11. 2.19 Female early stage entrepreneurial activity between 2002 and 2008 has increased in the Northwest from 2.2% to 3.2%. We also observe the level of female entrepreneurial activity in the Northwest mirrored the UK trend until 2005, after which, the gap between the UK narrowed. Figure 11: Early stage Female Entrepreneurial Activity 2002-8

% of Adult P opulation

North West

UK average

5% 4% 4% 3% 3% 2% 2% 1% 1% 0% 2002

2003

2004

2005

2006

2007

2008

Source: GEM 2008 â&#x20AC;&#x201C; Northwest report

Age differences in the Northwest 2.20 In the Northwest, 3.3% of young people in 2008 (aged 18 to 24) were engaged in early stage entrepreneurial activity compared to 4.1% for the UK as a whole, shown in Figure 12. For the UK as a whole, the highest levels were found among those aged 35 to 44 (7.1%). Overall, therefore, those involved in nascent or new business activity in the Northwest had a broadly similar age profile to the UK average and any of the observed differences were not statistically significant. Figure 12: Early Stage Entrepreneurial Activity by age

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Enterprise North West

% of Adult Population

18-24

25-34

35-44

45-54

55-64

All

Source: GEM 2008 â&#x20AC;&#x201C; Northwest report

Ethnicity and mobility in the Northwest 2.21 The GEM 2008 survey also asked how long an individual had lived in the region and from this it was possible to identify in-migrants to the region. Across all the UK regions levels of early stage entrepreneurial activity for in-migrants were generally higher than for life-long residents (Figure 13). The exceptions were Scotland and Yorkshire and Humberside. In the Northwest the TEA rate for inmigrants was 6.4% compared to 5.1% for life-long residents and 6.3% for in-migrants for the UK as a whole. These differences were not statistically significant. However, the distinction was less pronounced between immigrants and life-long residents in the Northwest: 5.3% compared to 5.1%. The rate of early-stage entrepreneurial activity for immigrants in the UK was 6.5%. Figure 13: Early Stage Entrepreneurial Activity by ethnicity Life-Long Residents

In-Migrants

Immigrants

12%

%of Adult Population

10%

U K

L o n d o n M id l a E n as d s t o f E n g la n d W es t

W al es

S co tl an d S o u th N o E rt as h t er n Ir el an E d as t M id la n d s S o u th W es t N o rt h E as t N o rt h W es t

Y o rk s

H u m b er

Source: GEM 2008 â&#x20AC;&#x201C; Northwest report

Social Entrepreneurship 2.22 There is increasing interest across the UK and in the Northwest generally towards social entrepreneurship. It represents a way of increasing access to entrepreneurship, as a way of engaging in entrepreneurial activity for those who have a strong community, social or environmental purpose. Its role in regenerating deprived parts of the economy is also particularly interesting to policy makers since, as successive GEM Social Entrepreneurship Monitors have shown, individuals with lower rates of engagement in the formal labour market (the unemployed, women and ethnic minority groups for example) are proportionately more likely to be social entrepreneurs.

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Enterprise 2.23 This section contains only the headline results of GEM 2006 as GEM 2007 & 8 did not explore Social Entrepreneurship. Again numbers were relatively small; however, they do suggest that social entrepreneurship in the Northwest is an important phenomenon, as illustrated in Figure 14 which demonstrates individual entrepreneurs and social entrepreneurship at three key stages: 

Nascent entrepreneurs: The point at which resources are committed to starting a business.



Baby business entrepreneurs: Those who have been paying salaries for more than three months but less than forty-two months.



Established business owners Figure 14: Social entrepreneurship across the UK regions

Source: GEM 2006 – Northwest Report

2.24 In 2006 the Northwest had one of the highest rates of early stage social entrepreneurial activity (SEA) in the UK at 3.4%. This was slightly higher than the UK average of 3.3% but not as high as London at 3.7%. Although these differences were not statistically significant, they do suggest the Northwest is one of the more socially entrepreneurial regions. Figure 15: Social Entrepreneurial activity by sub region

Source: GEM 2006 – Northwest Report

2.25 Figure 15 shows Greater Manchester appeared to have the highest rate of social entrepreneurship at 4.9% compared to 2% in Cheshire. Cheshire is predominantly a more prosperous area and will not share the same social issues Greater Manchester faces.

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Enterprise 2.26 In the UK as a whole, it is younger people who are more likely to be social entrepreneurs (figure 16). This pattern was even more marked in the Northwest with the 18-24 year old age group the predominant group of social entrepreneurs compared to other age groupings. 2.27 Social entrepreneurship, in the views of experts, represents a new business model that allows individuals to service the business requirement for profitability and a range of broader community, social and environmental goals: the “triple” bottom line. What is interesting is social entrepreneurial activity has been focused in the younger age groups for the last three years in the UK and this appears to have been even more strongly the case in the Northwest. Figure 16: Social Entrepreneurship by age

Source: GEM 2006 – Northwest Report

HEIs and Enterprise 2.28 Enterprise in this context covers a broad range of Higher Education-business interactions, including supporting student, graduate and staff enterprise, spin offs and the exploitation of IPR; supporting innovation and knowledge transfer into businesses and employer engagement in skills and workforce development. The NW Higher Education Institutions, for instance, have very high numbers of incubation facilities and science parks in the region offering considerable enterprise support. Levels of entrepreneurship training delivered by the HEIs are particularly high for both spin-offs and the wider business community, and all HEIs in the region now offer short bespoke courses for business (HE-BCI 2008-9 data). In total, the economic impact of the region’s HEIs and their graduates was estimated to be worth c£3.5 billion of GVA to the NW economy in 2007 (Economic Impact and Potential of HEIs in the NW Impact Study, SQW 2009). 2.29 The available data suggests that Enterprise activity within the HE sector is much stronger than the general Northwest figures, with the region performing above the English average on several measures. In 2006-2007, graduate start-ups in the Northwest accounted for 19.6% of the English total, considerably above the expected average of 11% and the second highest regional figures, behind only London at 23.9%. The most recent figures show that although the percentage of graduate start ups decreased last year (9.6% of the English total in 2007-8), additional measures remain very strong. These include the number of active graduate firms within the region (14.2% of the English total) and estimated employment rates of all active firms (14.4% of the English total). Encouragingly, the number of active graduate start-ups which have survived for at least three years has increased considerably, to 14.4% of the English total (up from 11.9% in the previous year) suggesting that not only is the NW performing well at assisting graduates to start their own businesses, but they are also surviving at rates well above the English average. 2.30 With regards to HEI spin-offs, whilst the overall numbers are small, they do paint a positive picture for the region. Some 116 spin-off companies, (employing an estimated 709 full-time equivalent staff) with at least some NW HEI ownership are now active, representing 14.2% of the English total. Five further spin-offs from NW HEIs, with no formal ownership, were established in 2007-8, bringing the

17 Regional Intelligence Unit

Enterprise total number of active companies under this category to 21 (22.6% of the English total). In this context, it is highly likely that these companies will be in high-value and knowledge sectors. 2.31 HE Enterprise activities to-date have been supported by considerable investment from various sources including European funding (both ERDF and ESF), UK Government regeneration funds, RDA funding and other regeneration grants. However, the income from these sources fell significantly in 2007-8, and at a disproportionate level to other regions (source HE BCI 2009). This may pose a significant threat to the continued high levels of HEI enterprise activities in the region, unless additional funding sources can be identified.

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Enterprise 3.

Business starts/closures and survivability EXECUTIVE SUMMARY 

There were 37 business starts per 10,000 population (16+) in the Northwest in 2007 compared to 43 in England.



There were 48 business starts per 10,000 population (16+) in Cheshire in 2006.



There were 28 business starts per 10,000 population (16+) in Merseyside in 2006, the only sub region to perform consistently worse than the regional average.



There were 58 business starts per 10,000 population (16+) in Macclesfield in 2007, the best performing Local Authority District in the region.



There were 21 business starts per 10,000 population (16+) in Knowsley in 2007, the worst performing Local Authority District in the region.



Barrow experienced the biggest increase, from 28 business starts per 10,000 (16+) in 2003 to 40 in 2007.



Eden experienced the biggest decrease, from 46 business starts per 10,000 (16+) in 2003 to 39 in 2007.



There were 26 business de-registrations per 10,000 population (16+) in the Northwest compared to 31 in England in 2007.



Data suggests in those areas with a high churn rate i.e. high registrations and high deregistrations, productivity is higher.



92% of businesses in the Northwest survived the first 12 months of business in 2004 which matched the national rate.



71% of businesses in the Northwest survived the first 3 years of business in 2002 which matched the regional rate



Survival rates between 12 – 36 months are a lot better in rural areas when compared to the regional average.

Business starts 3.1

This section follows on from awareness, aspirations, attitudes and ability in the business journey, and measures the level of business starts per 10,000 people. Assessing the level of business starts and aligning this with attitudes in the same geographical location gives us a powerful picture of those areas where enterprise activity is strong. Before 2007 business starts were monitored by the number of VAT registrations and in 2006 the VAT registration threshold was £61,000. Registrations are now monitored by PAYE registrations and account for what looks like a significant increase in business starts in 2007. Business starts per 10,000 (16+ population)

3.2

Business starts per 10,000 population over the last 5 years have remained relatively consistent for all areas in the region, as Table 2 demonstrates. The increase in 2007 is more a reflection of a methodological change than an increase in start-ups.

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Enterprise Table 2: Business starts per 10,000 (16+)

England Northwest Cheshire Cumbria Greater Manchester Lancashire Merseyside

Sub-regions 2005 2006 39 39 33 32 42 41 31 31

2003 42 35 43 38

2004 40 33 41 31

2007 43 37 48 40

37 26

34 25

32 24

31 23

45 28

Source: BIS business statistics

3.3

It is interesting to note in 2003 the level of business starts across all regions reached a five year high. It is well reported 2003 was a good year for business all round and this buoyancy has been supported by the level of starts, in that year.

3.4

A stark sub-regional interpretation of these results (Figure 17) shows Cheshire as the only sub region to consistently perform above the England average. Following on from section 1, which looks at ability, this is unsurprising given the perceived high skill levels of those residing in Cheshire. Figure 17: Business starts per 10,000 (16+)

Business strats per 10,000 population

50 45 England North West

Cheshire Cumbria

Greater Manchester 30

Lancashire Merseyside

25 20 2003

2004

2005

2006

2007

Source: BIS business statistics

3.5

Business starts in the NW compared to England have been consistently poor over the last five years. On average there were 7 less business starts per 10,000 (16+) compared to England. There is no doubt the poor performance of Merseyside is a significant contributing factor to this. Again this reflects earlier findings in section 1 where residentâ&#x20AC;&#x2122;s perception of their own ability to start a business in Merseyside was low. Further analysis of sub regional performance is considered in the following graphs.

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Enterprise Cheshire East Figure 18: Business starts per 10,000 population (16+) Cheshire East Cheshire East

Business starts per 10,000 population

65 60 55 50 45 40 35 30 25 20 2003 Cheshire

2004 Macclesf ield

2005 Congleton

2006

2007

Crew e and Nantw ich

Source: BIS business statistics

3.6

Cheshire Eastâ&#x20AC;&#x2122;s performance with regard to business starts is inflated by the performance of Macclesfield, which experienced 58 business starts per 10,000 population in 2007, 15 above the England average and 21 above the NW. This is unsurprising, Macclesfield is arguably one of the best performing local authority districts in the region, characterised by a strong skills base, high levels of labour participation with a high economic activity and employment rate. Data also indicates that numbers of households with incomes over ÂŁ60K are seven and a half times the regional index. Macclesfield is not only dominated by the attributes to start an enterprise but is characterised by a strong performance in two of the more important aspects, ability and resource.

3.7

The skills base is strong across most of the local authority districts in Cheshire East apart from Crewe and Nantwich. This has not affected the level of business starts in Crewe and Nantwich, which reported 41 business starts per 10,000 population in 2007 (37 in the NW). Reasons can partly be explained by the fact Crewe has one of the largest railway stations in the Northwest and is also one of the best located railway stations nationally. It serves as a major interchange on the West Coast Main Line with a direct service to London (Euston - under 2 hours) and an interchange for links to Liverpool, Manchester, Birmingham, Glasgow, Cardiff, Stoke-on-Trent and many other cities, providing robust transport links for business.

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Enterprise Cheshire West Figure 19: Business starts per 10,000 population (16+) Cheshire West Cheshire West

Business starts per 10,000 population

55 50 45 40 35 30 25 20 2003

2004

Cheshire

Chester

2005

2006

Vale Royal

2007

Ellesmere Port and Neston

Source: BIS business statistics

3.8

The availability of good skills is an issue in Ellesmere Port and Neston. There were 35 business starts per 10,000 population in Ellesmere Port and Neston in 2007. Although performing below the regional average this represents a significant improvement compared to the previous four years when the district was considered one of the worst performing across the region. The district is characterised by a limited skills base, poor levels of labour participation and a poor employment rate, all well below the regional average. It is also a district dominated by large scale industries such as the manufacture of cars and oil, manufacture of coke and refined petroleum products, which provides the majority of employment in this area. A combination of low skills and an area dominated by narrow but safe employment options does not inspire residents to become entrepreneurs, which could explain the low levels of start ups. Greater Manchester Figure 20: Business starts per 10,000 population (16+) Greater Manchester Greater Manchester Business starts per 10,000 population

60 55

England North West

Greater Manchester Bolton Bury Manchester Oldham

45 40

Rochdale Salford Stockport

Tameside Trafford

Wigan

20 2003

2004

2005

2006

2007

Source: BIS business statistics

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Enterprise 3.9

Greater Manchesterâ&#x20AC;&#x2122;s performance can largely be split into two with regard to the level of start ups, north and south. Broadly speaking other than Bury and Tameside, local authority districts in the north perform worse than those in the south. This can be clearly seen in Table 3. Table 3: Business starts per 10,000 (16+) Greater Manchester

England Northwest GM North Bolton Bury Oldham Rochdale Wigan GM South Manchester Salford Stockport Tameside Trafford

2003 42 35

Greater Manchester 2004 2005 2006 40 39 39 33 33 32

2007 43 37

36 41 29 31 29

34 35 32 30 27

33 37 29 30 27

38 37 30 30 27

35 39 31 33 33

41 36 40 28 51

41 33 37 30 49

38 36 39 31 52

38 38 38 27 55

43 38 43 31 58

Source: BIS business statistics

3.10 Table 3 shows North Manchester is characterised by the underperforming local authority districts of Oldham, Rochdale and Wigan. Historically these areas were recognised for their textile industries and even today contain more tanning & dressing of leather manufacturers; manufacture of leather goods than the NW, reflecting their strength in early textile trade. Over the years wage price inflation in the UK has meant it is now cheaper to manufacture these products in India and China, adversely affecting this industry in the UK as a whole, which has been compounded in these areas where the textile industry was once prominent. 3.11 Now in decline suffering from low skills attainment these local authority districts once rose to prominence during the 19th century as international centres of textile manufacture, which are now in decline. 3.12 As previously mentioned the only local authority district to buck the below average trend in North Manchester is Bury. Reasons for this can be explained by attainments in NVQ 2 & 4 which are above the regional average, representing ability. In addition, there has been a lot of emphasis on enterprise which has resulted in the development of the Chamberhall Business Park and town centre business improvements has attracted new businesses into the area. 3.13 South Manchesterâ&#x20AC;&#x2122;s business start up landscape is quite the reverse of North Manchester with above average start up rates in all districts, other than Tameside. 3.14 Business start up rates in Trafford has averaged 53 business starts per 10,000 population over the last 5 years, far exceeding both the regional and national average. It is an area characterised as having a good skills base and is reflected by the type of business residing in Trafford, largely dominated by legal and accounting businesses, computing construction and real estate - high end businesses offering a lot of opportunities which attracts other businesses to the area. 3.15 Manchester, Salford and Stockport, over the last 5 years, have experienced above regional average start up rates. Each Local Authority District, in terms of absolute numbers, are dominated by business activities, which includes legal and accounting jobs, retail, real estate, construction and wholesale trade. Stockport has a strong skills base representing the ability. However, Manchester and Salford suffer with a mixed skills base and suggests there are other motivations for high start ups, which given the geographies of the two could be polycentric i.e. the magnetism, the sheer attractiveness of town centres.

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Enterprise 3.16 Tameside is the only district in South Manchester which consistently underperforms the regional average with regard to start ups. It is an area characterised by low skills and a large proportion of its population classed in the lower social groups. These negative characteristics of Tameside are perceived as major obstacles to business start ups. Lancashire 3.17 Lancashireâ&#x20AC;&#x2122;s overall performance with regard to business start ups was broadly in line with the region. However, despite this, it is interesting to note (figure 21) up until 2006, a majority of all the local authority districts in Lancashire show a decline in start-ups since 2003. This decline is more prominent in two districts in particular; Lancaster which has dropped from 31 business starts per 10,000 population in 2001 to 22 in 2007 and Pendle which has dropped from 34 business starts per 10,000 population in 2003 to 28 in 2007 (see figure 22 overleaf). Figure 21: Business starts per 10,000 (16+) Lancashire Lancashire Business starts per 10,000 population

65 England

North West Lancashire County

Blackburn with Darwen

Blackpool

Chorley

Burnley Fylde

Hyndburn Lancaster

Pendle Preston

Ribble Valley

Rossendale South Ribble

West Lancashire

2003

2004

2005

2006

2007

Wyre

Source: BIS business statistics

3.18 The decline in Lancasterâ&#x20AC;&#x2122;s level of business starts is unique given the attributes of the district. Characterised by a strong skills base, good graduate retention, excellent transport links and an overall good quality of life it is an area which should incubate strong business start up. One possible explanation for this decline is the fact that a fifth of the population in Lancaster are of pensionable age. 3.19 The reason for the decline in the level of business start-ups in Pendle is similar to those North Manchester local authority districts. The district was once dominated by textile manufacturing industries which through global competition have seen sharp declines.

24 Regional Intelligence Unit

Enterprise Table 4: Business starts per 10,000 (16+) Lancashire

England Northwest Lancashire Burnley Chorley Fylde Hyndburn Lancaster Pendle Preston Ribble Valley Rossendale South Ribble West Lancashire Wyre

2003 42 35 37 37 42 41 29 31 34 39 62 41 37 33 32

2004 40 33 34 31 38 39 31 27 27 39 46 43 33 32 33

Lancashire 2005 2006 39 39 33 32 32 31 29 29 37 36 37 32 30 32 23 23 27 26 35 35 50 43 38 39 31 31 35 29 29 26

2007 43 37 35 27 37 36 33 22 28 38 58 45 40 38 35

Source: BIS business statistics

Cumbria 3.20 The level of start-ups in Cumbria is varied dependent on district as shown in Figure 22 overleaf. Eden and South Lakeland, up until 2006, both consistently produced more start-ups per 10,000 population than the NW. Both districts are prosperous and characterised by a high skills base, which suggests people choosing to start a business possess the ability and resource to do so. Despite this it is interesting to note the decline in the number of business starts in both districts between 2003 and 2007. 3.21 Parallel to the performance of Eden and South Lakeland, Barrow-in-Furness and Copeland fair particularly badly. In 2006 Barrow experienced only 26 business starts per 10,000 population and Copeland only 30, compared to the NW average of 37. 3.22 Barrow has a specialised economy characterised by a few major employers heavily reliant on public spending e.g. BAE. It has a population which is participating fully within the employment market but in relatively low paid occupations. It is also an area which suffers with a higher skills deficit, ageing population with remote transport links. Low resource, opportunity and ability equals low start up rates. 3.23 Copeland is similar to Barrow in the fact it suffers with a higher skills deficit, ageing population and remote transport links, all factors which explain the previous poor performance of business starts in this area. 3.24 Despite the previous poor performance in both Copeland and Barrow the momentum of business starts in both districts have increased significantly since 2005. Further in depth analysis is needed to explain this phenomenon.

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Enterprise Figure 22: Business starts per 10,000 (16+) Cumbria Business starts per 10,000 population

Cumbria 60 50 40 30 20 10 0 2003

2004

2005

2006

2007

England

North West

Cumbria

Allerdale

Barrow -in-Furness

Carlisle

Copeland

Eden

South Lakeland

Source: BIS business statistics

Merseyside Figure 23: Business starts per 10,000 (16+) Merseyside

Business starts per 10,000 population

Merseyside 50 45 40 35 30 25 20 15 10 5 0 2003

2004

2005

2006

England

North West

Merseyside

Know sley

St. Helens

Sefton

Wirral

Halton

2007 Liverpool

Source: BIS business statistics

3.25 In line with previous indicators such as attitudes and ability, Merseyside suffers from a low start-up rate. Merseyside has many economic and social problems, high unemployment and poor skills, indicating social inclusion failures. Labour market failures are apparent due to the high levels of inactivity. Working together these factors act as major barriers towards start-up rates and are shared across all districts in Merseyside. Other than the Wirral, which is largely a residential area and a commuter belt for those working in Liverpool which explains the low level of start-ups. Rural areas 3.26 For the purposes of this evidence paper the definition of a rural area is a district with at least 80% of their population in rural settlements and larger market towns. Figure 24 demonstrates business starts per 10,000 in these areas against the NW and England average.

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Enterprise 3.27 Of the six rural areas in the Northwest, as defined above, only Congleton and the Ribble Valley experienced consistent start up rates above both the England Northwest average. They are both successful districts with a strong skills base, high economic activity rates resulting in high levels of enterprise. 3.28 The performance of Eden is interesting in the fact that in 2003 there were 46 business starts per 10,000 which had fallen to 39 by 2007, representing a significant fall. One fundamental explanation for this will be the long term impact of Foot and Mouth in 2001. Other possible explanations for this could be the fact that over a fifth of the population are pensioners (3% higher than the NW average), indicating low aspirations to start a business. Average earnings per week are very low in the district (ÂŁ60 per week less than the Northwest) indicating lower level employment opportunities which are driving young people away from the area to seek better opportunities elsewhere. In addition, the availability of affordable housing for the young is limited, again driving them away, resulting in the area losing that young entrepreneurial drive needed for a successful enterprising area. 3.29 Allerdale and Copeland are two rural areas which have largely remained below the regional average level of business start-ups. Both areas are characterised by older wealthy people suggesting West Cumbria as a place to retire resulting in a culture of low aspirations to start a business. The numbers of people with no qualifications in these areas are low; however, there is a significant problem with level 4 qualifications, limiting ability. The employment and business structure of these areas highlight the dependency on the nuclear industry, also limiting aspirations to start a business.

Business starts per 10,000 population

Figure 24: Business starts per 10,000 (16+) in rural areas 70 60 50 40 30 20 10 0 2003

2004

2005

2006

2007

England

North West

Allerdale

Congleton

Copeland

Eden

Ribble Valley

South Lakeland

Source: BIS business statistics

Registrations and de-registrations 3.30 Comparing registrations with de-registrations informs us of the opportunities that reside in particular areas. Figure 25 indicates at a sub-regional level, in absolute terms, the most popular area in the region to start a business versus the de-registration level in the same area. Immediately apparent is the level of registrations in Greater Manchester, 7,990 in 2006. This is unsurprising given the scale of Manchester as a city and the agglomeration effects associated with this. 3.31 However, of more interest when interpreting Figure 25 is the high level of de-registrations compared to registrations across the entire sub regions. This is better demonstrated in table 5. 3.32 Table 5 demonstrates the significant levels of de-registrations compared to the registration level in some areas, most notably Greater Manchester. These activity levels suggest a high level of churn. Some argue this level of churn is good for an area as increased competition breeds a â&#x20AC;&#x2DC;survival of the fittestâ&#x20AC;&#x2122; culture, ensuring those businesses left are the ones more likely to survive and thrive in the

27 Regional Intelligence Unit

Enterprise future, increasing productivity and ultimately benefiting the prosperity of the area they reside in. Figure 25: Registrations v de-registrations (sub-region) 2007 9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 Manchester

Lancashire

Merseyside

VAT registrations

Cheshire

Cumbria

VAT deregistrations

Source: BIS Small Business Statistics 2007

Table 5: Registrations v De-registrations by sub region

Manchester Lancashire Merseyside Cheshire Cumbria

VAT registrations 7,990 3,345 3,125 2,705 1,635

2007 VAT de-registrations 6,020 2,605 2,025 1,775 1,070

Net 1,970 740 1,100 930 565

Source: BIS Small Business Statistics 2007

3.33 Figure 26 demonstrates business de-registrations per 10,000 by sub region over the last five years compared to the regional and England average. It is interesting to note all sub-regions have a lower de-registration rate than England, although Cheshire in 2007 has risen above the England rate. 3.34 In order to observe the churn rate hypothesis we must look at the productivity of each of the sub regions, demonstrated in Table 6 which looks at GVA per head in 2006 (Regional Accounts 2008).

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Enterprise Figure 26: Business de-registrations per 10,000 by sub-region

VAT de-registrations per 10,000 (16+)

35 33 31

England

Northw est

Cheshire

Cumbria

Greater Manchester

Lancashire Merseyside

19 17 15 2003

2004

2005

2006

2007

Source: Mid year population estimates and VAT de-registrations 2003 â&#x20AC;&#x201C; 2007

Table 6: GVA per head by sub-region Sub region England Northwest Cumbria Cheshire Greater Manchester Lancashire Merseyside

GVA/head (ÂŁ) 19,413 16,482 14,044 20,822 17,535 15,145 13,615 Source: Regional Accounts 2008

3.35 In terms of GVA per head Cheshire is the most productive sub-region and Merseyside is the least. Figure 27 compares the churn rate between the sub regions. Figure 27: Registrations v De-registrations (per 10,000 16+) by sub region 2003-2007 2003 Reg

2003 De-reg 50

2004 Reg

2004 De-reg 2005 Reg

2005 De-reg

2006 Reg 2006 De-reg

2007 Reg

ey si de M er s

er M G

re at

La nc as hi re

an ch es te r

ia um br C

he sh ire

2007 De-reg

En gl an d

Source: Mid year population estimates and VAT registration and de-registrations 2003 - 2007

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Enterprise 3.36 The success of Cheshire is more apparent in Figure 27 because the level of registrations and deregistrations per head of population is a lot higher in Cheshire than any other sub-region. This suggests increased competition in the area resulting in more productive businesses. Of course the productivity of an area is not solely dependant on the churn rate; the sectoral make up is equally as important i.e. high end businesses v low-end businesses. 3.37 The churn rate hypothesis is true for those areas where the level of registrations and de-registrations is at a high threshold e.g. Cheshire. However, in an area that suffers with lower registrations and deregistrations e.g. Merseyside, the formula to increase prosperity in such an area will be to ensure there are more registrations than de-registrations, so the business stock reaches an optimum level. Once this optimum level has been reached, it is at this point, a high churn rate (competition) will ensure those businesses which survive are the most efficient, leading to higher productivity. 3.38 Table 7 below compares the level of registrations and de-registrations with the GVA/head. Cheshire outstrips Merseyside in all of the indicators and to a large extent supports the productivity argument. Table 7: Churn rate and GVA/head Sub-region Cheshire Merseyside

2007 VAT registrations VAT de-registrations per 10,000 per 10,000 48 32 28 18

GVA/head (ÂŁ) 20,822 13,615

Source: Mid year population estimates and VAT de-registrations 2003 â&#x20AC;&#x201C; 2007, Regional Accounts 2008

De- registrations in rural areas Figure 28: De-registrations per 10,000 (16+) in rural areas 50 45 England

Northw est

Allerdale

Congleton

Copeland Eden

Ribble Valley

South Lakeland

10 5 2003

2004

2005

2006

2007

Source: Mid year population estimates and VAT de-registrations 2002 â&#x20AC;&#x201C; 2006

3.39 Figure 28 illustrates that Eden, the Ribble Valley, Congleton and South Lakeland all have deregistration levels consistently above the Northwest average.

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Enterprise Figure 29: Registrations v De-registrations per 10,000 (16+) in rural areas 70 2003 Registrations

2003 De-registrations 50

2004 Registrations 2004 De-registrations

2005 Registrations 2005 De-registrations

2006 Registrations 20

2006 De-registrations 2007 Registrations

2007 De-registrations

0 England

Northwest

Allerdale Conglet on Copeland

Eden

Ribble Valley

Sout h Lakeland

Source: Mid year population estimates and VAT registration and de-registrations 2003 â&#x20AC;&#x201C; 2007

3.40 The de-registration levels in these areas can be explained by looking at Figure 29 above which looks at the registration versus de-registration levels per head of population in rural areas. As you can see Eden, Ribble Valley, Congleton and South Lakeland all have high enterprise activity rates signifying greater competition in these areas, which ultimately leads to higher de-registrations, as only the â&#x20AC;&#x2DC;fittest surviveâ&#x20AC;&#x2122;. Survival rates 3.41 12 month survival rates between 2000 and 2004 have largely been the same between England and the Northwest. Cumbria is the only sub region in the NW containing businesses that consistently beat the Northwest and England in terms of one year survival rates. This follows on from Figure 27, which analysed de-registration rates, and found that Cumbria was the second best performing sub-region. Cumbria suffers from lower than regional average registration rates indicating lower competition levels resulting in better opportunities for new businesses to survive. In addition, Cumbria will be characterised by a greater proportion of lifestyle and family established businesses. 12 month survival rates in Greater Manchester are consistently below the regional average, signifying greater competition. This is supported by the start-up figures in Table 3 which shows levels above the regional average for Manchester South.

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Enterprise Figure 30: 12 month Survival rates 98 96 England

North West Cheshire

Cumbria County 90

Greater Manchester Lancashire County

Merseyside 86 84 2000

2001

2002

2003

2004

Source: BIS Small Business Statistics

Figure 31: 36 month survival rate 85 80 England

North West Cheshire

Cumbria 65

Greater Manchester Lancashire

Merseyside 55 50 1998

1999

2000

2001

2002

Source: BIS Small Business Statistics

3.42 When you compare the 12 and 36 month survival rates it is worth noting the percentage of businesses surviving diminishes significantly after each year. 3.43 Differences between Northwest and England survival rates over a 36 month period demonstrate business survival over this period is better in England. Survival rates in Cumbria are now enhanced, demonstrated by a significantly higher percentage of businesses surviving over a 3 year period than the Northwest. The picture for Greater Manchester becomes worse with the gap widening at a three year survival rate from the regional average. Competition is the explanation for the difference in performance in these areas. Increased competition in Greater Manchester makes it difficult for younger businesses to survive whilst lower competition in Cumbria makes it easier for newer businesses to survive.

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Enterprise Rural Areas Figure 32: 12 month survival rates in rural areas England

100 98

North West

Allerdale

Congleton 92 90

Barrow -in-Furness w ith Copeland

Eden

Ribble Valley

South Lakeland 2000

2001

2002

2003

2004

Source: BIS Small Business Statistic

3.44 Figure 32 tracks survival rates in rural areas over a 12 month period. Survival rates in most of the rural areas during the first 12 months were, on average, significantly higher than both the regional and England average. Figure 33: 36 month survival rates in rural areas 90

England

North West

Congleton

Allerdale 70 65

Barrow -in-Furness w ith Copeland

Eden

South Lakeland

Ribble Valley 1995 1996 1997 1998 1999 2000 2001 2002

Source: BIS Small Business Statistics

3.45 Over 36 months, as can be seen in Figure 33 above, the percentage of businesses surviving over this period enhance greatly when compared to both the England and Northwest. Possible explanations for this could be these businesses are usually traditionally based, selling bespoke products, that maybe unique to that area i.e. food products or tourist goods. As a result, because of these niche products competition is not as great allowing them to survive longer. Characteristics of over and under performing districts 3.46 This section looks at the characteristics of those underperforming districts versus the over performing districts. An over performing district is one characterised by a start up rate above the England average of 43 business starts per 10,000 population. An underperforming district is one characterised

33 Regional Intelligence Unit

Enterprise by having a start-up rate lower than the Northwest average of 37 business starts per 10,000 population. 3.47 In order to compare districts, a range of indicators have been chosen to compare the entrepreneurial ‘spirit’ residing in that particular district. They are as follows: 

Economic activity - Economically active people supply, or want to supply, their labour to produce goods and services within an area. This demonstrates attitude, an area with high start up rates is synonymous with high Economic activity rates.



Economically Inactive (want a job) – Similar to Economic activity, these people are not currently working but are actively seeking employment, again demonstrating attitude.



Economically Inactive (do not want a job) – These people are currently unemployed and are not actively seeking employment and represent the worklessness amongst the population. This group would be synonymous with an under-performing district.



NVQ 4 qualifications – This skill level attainment is equal to holding a degree or equivalent qualification and represents ability. This would be synonymous with an over performing local district.



No qualification – This represents those individuals with below basic skills in literacy, language, numeracy and I.T. This would be synonymous with an under-performing district.



Index of Multiple Deprivation (IMD) - The Index is calculated by collecting data on seven main topic areas or domains, each measuring a different aspect of deprivation; Income, Employment, Health, Education, Housing and Living Environment deprivation and Crime. The higher the score the more associated a district is with areas of deprivation. This is a good indication of ability and resource.

3.48 All of these indicators have been ranked against the England average and highlighted either red or green. Green means the indicator is performing better than the England average and red indicates the reverse. 3.49 Table 8 compares all of these characteristics for the over performing districts. Straightaway the table is characterised by green cells demonstrating above England average performance for most of over performing local districts in a majority of the indicators.

34 Regional Intelligence Unit

Enterprise Table 8: Over performing districts

Sub-region

Cheshire East

Cumbria Greater Manchester Lancashire Northwest England

Local Authority Chester Congleton Macclesfield Vale Royal Eden South Lakeland Trafford Ribble Valley N/A N/A

Characteristics of over performing authorities Economically Economically Inactive - do Economic Inactive - want not want a job activity (%) a job (%) (%) 52 83.3 3.9 12.8 54 83.3 3.9 12.8 58 83.3 3.9 12.8 44 83.3 3.9 12.8 39 79.3 3.7 16.9 43 79.4 4.5 16.0 58 79.9 6.1 14.0 58 87.1 2.1 10.8 37 76.8 5.2 18.0 43 78.6 5.3 16.1

Bus starts per 10,000 (16+)

NVQ level 4+ qualifications (%)

No qualifications (%)

IMD score

34.1 34.1 34.1 34.1 26.2 36.0 35.9 48.2 25.4 28.3

9.0 9.0 9.0 9.0 6.4 10.1 8.5 8.4 15 12.9

16.86 9.86 10.67 16.18 14.64 11.67 17.33 10.07 N/A N/A

3.50 Table 8 demonstrates districts characterised by positive attitudes, good skills and resource. All of which you would associate with a successful entrepreneurial area. 3.51 Following on from the previous section the strength of Cheshire East as a sub region with regard to business starts is obvious given the number of local districts highlighted in this table. This is also supported by the over performance in the indicators for each of the local authority districts. 3.52 Table 9 compares the same characteristics for the under performing local authority districts. Immediately the table is characterised by red cells indicating below average performance compared to the England average. In addition, the number of local authority districts in the region which performs below the NW start-up rate is apparent, almost twice as many as those performing above the England average. 3.53 These districts are characterised by individuals with less drive, lower qualifications, less resource in areas considered to be characterised by pockets of deprivation. This in turn affects ability, attitude and resource to start a business leading to below average performance. Table 9: Under performing districts

Sub-region

Local Authority

Cheshire West

Ellesmere Port Oldham Rochdale Tameside Wigan Burnley Lancaster Pendle Wyre Knowsley Liverpool St Helens Sefton Wirral N/A N/A

Greater Manchester

Lancashire

Merseyside

Northwest England

Characteristics of under performing authorities Economically Economically Economic Inactive - do Inactive - want activity (%) not want a job a job (%) (%) 35 77.5 4 18.5 31 76.3 6 17.8 33 74.5 8.3 17.3 31 78 5.1 16.9 33 75.7 4.1 18.9 27 70.6 3.7 25.7 22 77.8 5.3 17 28 77.8 3.1 19.1 35 82.8 2.6 14.6 21 71.8 5.6 22.6 29 70.3 6.7 23 29 73.8 4.6 21.5 30 75.7 4.6 19.6 29 76.4 4.7 18.9 37 76.8 5.2 18.0 43 78.6 5.3 16.1

Bus starts per 10,000 (16+)

NVQ level 4+ qualifications (%)

No qualifications (%)

IMD score

33.1 19.8 21.1 18.9 20.5 22.5 33 15.8 23.2 15.6 20.1 22.3 25.9 24.9 25.4 28.3

10.5 19.3 19.0 17.9 17.3 17 9.9 17.2 9.8 24.4 22.3 17.8 14.9 13.5 15 12.9

19.92 30.82 33.89 28.78 26.91 34.61 21.94 30.24 17.7 43.2 46.97 29.82 25.13 27.9 N/A N/A

3.54 This section has merely touched upon some of the influencing factors which could determine an individual in starting a business. Further, more comprehensive detail on each of the indicators can be found in the following evidence papers: ď&#x201A;ˇ

Local Employment

ď&#x201A;ˇ

Job Linkages

35 Regional Intelligence Unit

Enterprise ď&#x201A;ˇ

Basic Skills

ď&#x201A;ˇ

Community

36 Regional Intelligence Unit

Enterprise 4.

Business landscape EXECUTIVE SUMMARY 

Between 2001 and 2007 the Northwest increased its percentage share of businesses from 10.7% to 10.9%.



However, the percentage share of turnover in the Northwest between this period decreased from 9.3% to 8.4%, signifying low value added growth.



Between 2001 and 2007 the Northwest experienced a 27% increase in the number of enterprises.



However, growth in turnover during this period did not match performance which was only 18.5%, eighth highest of all the English regions.



Between 2001 and 2007 percentage growth in the self-employed increased by over 55%, and could explain the low value added growth in the region.



The percentage growth of micro-businesses, defined as 1-9 employees, for this paper increased by 5.1% between 2001 and 2007.



The percentage growth in small businesses, defined as 10-49 employees, for this paper increased by 0.8% between 2001 and 2007. Turnover amongst small businesses in the region increased by 30.5%



The percentage growth in medium sized businesses, defined as 50-249 employees, for this paper decreased by 4.3% between 2001 and 2007. However, turnover amongst medium sized businesses in the region increased by 12.4%.



The performance of small and medium sized businesses above suggests the environment is becoming more competitive and surviving businesses are becoming more productive.



The percentage growth in large businesses, defined as 250+ employees, decreased by 11.6% between 2001 and 2007. This is worrying given the significant contribution large businesses make to regional GVA.



The turnover of large businesses increased during this period by 2.3%.

Business landscape 4.1

Understanding the Enterprise landscape is essential in developing policy to assist a business at a particular key stage of development i.e. Micro, Small, Medium or Large. Previous data shows there is huge entrepreneurial potential within the region and to exploit growth we need to create a supportive environment that helps enterprises to start-up, survive and grow.

4.2

This next section looks at the business stock as well as self employment rates, micro, small, medium and large business performance in the Northwest. There are many sets of business data from which we can evaluate the business landscape, BIS business statistics, Annual Business Inquiry (ABI), Inter-Departmental Business Register (IDBR). For the purposes of the following analysis the data comes from BIS business statistics because it measures the actual number of enterprises. As with any dataset there are limitations, in this case, measuring the number of enterprises skews the data to those areas characterised by head office locations. For example, a registered enterprise with a lot of outlets, like a supermarket, does not distinguish the location of the individual outlet and therefore attributes all of them to the registered head office. For a region like London or the South East, characterised by a lot of head office locations, this over inflates the number of enterprises residing in these areas. The implication for the Northwest is the reverse and, in fact, under estimates the number of businesses in the region which in turn affects employment and turnover. Despite this measuring the level of enterprise in a region is an important measure because of the following reasons:

37 Regional Intelligence Unit

Enterprise

4.3



The kudos attributed to an area characterised by head office locations attracts other businesses.



A lot of Research and Development (R&D) is conducted at the head office location.



In times of economic downturn larger enterprises close branches, head offices are usually safe. An area characterised by head office locations are less vulnerable to loss of employment and enterprise.

Figure 34 shows the percentage share of all enterprises by region. As you can see between 2001 and 2007 the Northwest increased its share from 10.7% to 10.9%, an insignificant amount. There were 349,780 enterprises in 2001 which had risen to 444,150 by 2007 in the Northwest. Figure 34: Percentage share of all enterprise in the Northwest 25.0

Percentage share

20.0 2001

15.0

2003 2005 10.0

2007

5.0

0.0 Nort h East

Nort h West

Yorkshire East & Humber M idlands

West M idlands

East of England

London

Sout h East

Sout h West

Source: BIS Business Statistics

4.4

This increase in the number of businesses is better reflected in Figure 35 which shows that the percentage increase in the number of enterprises from 2001 to 2007 was 27% in the Northwest. It is interesting to note those areas with the biggest share of enterprises i.e. London, the South East and South West were also those areas which suffered comparatively lower growth rates in the number of enterprises. This suggests these regions could have hit a threshold where competition levels are just too great limiting business opportunities. Those areas characterised by a lower concentration of businesses, such as the Northwest, Yorkshire and Humber and the West Midlands might be perceived as areas of choice with regard to succeeding. Areas of opportunities, in this case, are demonstrated by increases in the percentage share of businesses and also an increase in the growth of businesses. Figure 35: Percentage increase in businesses from 2001 to 2007 45.0 40.0

36.5

38.5

Nort h East

East M idlands

32.6

35.0 Percentage increase

37.8

29.8 30.0

27.0

25.0 18.4

20.0 15.0

19.7

12.4

10.0 5.0 0.0 London

Sout h East

Sout h West

Nort h West

West M idlands

East of England

Source: BIS Business Statistics

38 Regional Intelligence Unit

Yorkshire & Humber

Enterprise 4.5

Figure 36 demonstrates the percentage share of turnover by region between 2001 and 2007. The percentage share in the Northwest has decreased during this period from 9.3% to 8.4%. This suggests that although the Northwest has experienced growth in the number of businesses, their performance compared to other businesses in other regions has not been as good. The full extent of this is shown better in Figure 37. This graph monitors the percentage increase in turnover from 2001 to 2007, which for the Northwest was 18.5%. In 2001 turnover of all businesses in the Northwest was ÂŁ177,996 million which had increased to ÂŁ210,932 million by 2007.

4.6

This performance suggests that during this period the Northwest experienced low value added growth. Figure 36: Percentage share of turnover 35.0

Percentage share

30.0 25.0 2001 20.0

2003 2005

15.0

2007 10.0 5.0 0.0 Nort h East

Nort h West

Yorkshire East & Humber M idlands

West M idlands

East of England

London

Sout h East

Sout h West

Source: BIS Business Statistics

Figure 37: Percentage increase in turnover 45.0 38.6

40.0 Percentage increase

35.0

40.3

41.2

East M idlands

East of England

31.7

30.0

26.0

27.4

22.4

25.0 18.5

20.0 15.0 10.0

5.6

5.0 0.0 North East

North West

South West

West M idlands

South East

Yorkshire & Humber

London

Source: BIS Business Statistics

39 Regional Intelligence Unit

Enterprise Self-Employed* Figure 38: Percentage share of self-employed by region

10%

3% 10% North East North West 8%

18%

Yorkshire & Humber East Midlands West Midlands

East of England London South East

South West

21% 13%

Source: BIS Business Statistics 2007

4.7

Figure 38 above looks at the percentage share of the self-employed by region. The South East and London possess the largest share with 21% and 18% respectively. The Northwest has a 10% share of the self employed sector in England. * "With no employees" comprises sole proprietorships and partnerships comprising only the self-employed (BIS business statistics)

Figure 39: Percentage increase in the self-employed by region 2001 - 2007 60.0 50.0 Percentage increase

41.9 40.0

52.2

Yorkshire & Humber

North East

54.2

43.7

36.0

30.0 20.0

51.4

23.9

24.4

Sout h West

South East

17.5

10.0 0.0 London

Nort h West

West M idlands

East of England

East M idlands

Source: BIS Small Business Statistics 2007

4.8

Figure 39 demonstrates the percentage increase in the self-employed by region between 2001 and 2007. The Northwest experienced an increase of 36%. In 2001 according to BIS business statistics there were 231,995 self employed people which increased to 315,495 by 2007. As this figure shows, there was a significant increase in the number of self-employed across all regions; however, it was most prominent in the East Midlands.

4.9

Figure 40 highlights the percentage growth in turnover of the self-employed by region between 2001 and 2007. During this period the Northwest experienced a 55.8% growth in turnover. Turnover amongst the self employed in 2001 was ÂŁ11.6 billion which had increased to ÂŁ18 billion by 2007. As you can see an increase of this magnitude was not exclusive to the Northwest and was experienced

40 Regional Intelligence Unit

Enterprise by a number of regions. A possible explanation for this performance could be explained by the fact that a large proportion of the self-employed are skilled labourers i.e. plumbers, construction workers, plasterers etc and during this period the housing market was buoyant with house prices reaching unprecedented levels. This has given home owners the opportunity to release equity in their homes and make improvements increasing the demand in the skills of individual tradesmen. Figure 40: Percentage growth in turnover of the self-employed by region 2001 – 2007 90.0

81.0

83.4

80.0 Percentage increase

70.0

64.8

65.5

East M idlands

West M idlands

55.8

60.0 50.0 40.0 30.0

34.0

35.4

Sout h West

Nort h East

26.9 21.7

20.0 10.0 0.0 South East

London

Nort h West

East of England

Yorkshire & Humber

Source: BIS Small Business Statistics 2007

4.10 Other developments in key sectors such as IT offer additional explanations. For example changes to tax legislation will have undoubtedly contributed to this increase. Previously workers who owned their own companies were allowed to receive payments from clients direct to the company and to use the company revenue as would any small company. Therefore company profits could be paid as dividends, which were not subject to National Insurance payments. This ‘tax avoidance’ measure proved to be lucrative as long as you adopted self-employment status, therefore, contributing significantly to an increase in the self-employed. To eliminate this tax avoidance measure IR 35 was introduced to tax ‘disguised employment’ at a rate similar to employment bringing back a balance with regard to National Insurance contributions and employment status. 4.11 These two examples not only explain the increase in turnover but also the increase in the number of the self-employed across England. 4.12 Figure 41 looks in more detail at the percentage in employment who are self-employed by sub-region between 2004 and 2007 using data from the Annual Population Survey (APS). Using the APS allows us to distribute the self-employment sector geographically, although the figures will not be the same as BIS statistics because of differences in data collection. As you can see the self-employment rate in Cumbria in 2007 was 11.4%, significantly higher than the Northwest rate of 7.7%. A higher selfemployment rate in Cumbria has been consistent over this period. The Northwest rate of 7.7 % was lower than the England rate of 9.5% in 2007 and this has also been the consistent trend over the period. Merseyside had a self-employment rate of 6.3% in 2007 which although has seen an increase from 5.9% in 2004 is still well below the regional rate. Referring back to earlier evidence at the start of this paper this low level could be explained by aspirations and attitudes towards enterprise.

41 Regional Intelligence Unit

Enterprise Figure 41: Percentage in employment who are self-employed by sub-region 12.0 11.0 England

Percentage

10.0

North West

9.0

Cheshire

8.0

Cumbria Greater Manchester

7.0

Lancashire 6.0

Merseyside

5.0 4.0 2004

2005

2006

2007

Source: Annual Population Survey

Micro businesses (1-9 employees) Figure 42: Percentage share of micro businesses by region in 2007

11.4

3.5 12.3 North East North West

17.8

8.9

Yorkshire & Humber East Midlands West Midlands

8.4

East of England London South East

15.8

10.0

South West

11.9

Source: BIS Small Business Statistics 2007

4.13 For the purposes of this paper it is important to separate out the size of business by employees to fully understand their true performance. In this case micro businesses have been defined as 1-9 employees, omitting the self-employed and smaller businesses (10 to 49 employees) so as not to artificially inflate the performance of the micro sector. 4.14 Figure 42 shows the percentage share of micro businesses by region in 2007. As can be seen the Northwest commands a 12% share of the micro business market.

42 Regional Intelligence Unit

Enterprise Figure 43: Percentage growth of micro businesses by region 2001 – 2007 8.0 6.3 6.0

Percentage growth

4.0

3.0

3.2

East of England

West M idlands

5.1

East M idlands

North West

6.6

5.4

2.0 0.4 0.0 London

Sout h East

Yorkshire & Humber

Sout h West

Nort h East

-2.0 -4.0 -6.0

-5.5

-8.0

Source: BIS Business Statistics 2007

4.15 Figure 43 looks at the percentage growth of micro businesses by region between 2001 and 2007. The Northwest experienced 5.1% growth from 96,000 in 2001 increasing to 107,055 by 2007. Growth was prevalent across all regions except for London which experienced a 5.5% decrease. 4.16 Figure 44 shows the percentage growth in turnover of micro businesses between 2001 and 2007. The Northwest experienced a 44.1% increase during this period. In 2001 total turnover amongst micro businesses in the Northwest was equal to £27.6 billion rising to £39.9 billion by 2007. Growth of this nature could explain the low value added growth in the region. Figure 44: Percentage growth in turnover of micro businesses by region 2001 - 2007 70.0 62.7 60.0 52.3 49.4 Percentage growth

50.0

44.1

40.0 32.7 30.0

35.1

37.6

29.2 25.9

20.0

10.0

0.0 Sout h East

South West

East of England

Yorkshire & Humber

West M idlands

North West

North East

London

East M idlands

Source: BIS Business Statistics 2007

Small businesses (10-49 employees) 4.17 The official definition of a small business is one which has 0 to 49 employees. For reasons explained earlier, this does not give a true picture of the performance of small businesses because it would be artificially inflated by the performance of the self-employed and micro business sector. For this reason an analysis of small business performance has been undertaken as defined by 10 – 49 employees.

43 Regional Intelligence Unit

Enterprise 4.18 Figure 45 below shows the percentage share of small businesses with 10 to 49 employees by region in 2007. The Northwest contains a 13% share after the South East (17%) and London (16%). Figure 45: Percentage share of small businesses by region in 2007

3.7

10.9

12.7 North East North West 17.1

Yorkshire & Humber

9.6

East Midlands West Midlands East of England London

8.6

South East South West

15.7 10.3 11.3

Source: BIS Business Statistics 2007

4.19 Figure 46 demonstrates the percentage growth of small businesses with 10 to 49 employees by region between 2001 and 2007. The diagram makes alarming reading with widespread falls across all of the English regions apart from the Northwest which experienced a 0.8% increase and the South West which experienced a 6.4% increase. Figure 46: Percentage growth of small businesses by region 2001-2007 8.0 6.4 6.0

Percentage growth

4.0

2.0 0.8 0.0 0.0 East of England

-2.0

Nort h West

North East

-0.3

Yorkshire & Humber -0.6

East M idlands

South East

-1.2

-1.3

West M idlands

London

South West

-4.0 -4.3 -6.0 -7.1

-8.0

Source: BIS Business Statistics 2007

4.20 In 2001 the Northwest consisted of 17,940 small businesses with 10 to 49 employees which increased to 18,085 by 2007. This insignificant increase is alarming given policy is designed towards creating an entrepreneurial environment from which businesses can and grow and prosper. One possible explanation could be that small businesses in this category are in fact growing into medium sized businesses; however, later evidence on medium sized businesses will disprove this inclination. 4.21 This then leads us to a more negative hypothesis for the reason behind such declines. One possible explanation is increased competition. Many small businesses of this size are in the retail sector - It has been well reported by small business lobby groups that the dominance of larger retailers, including supermarkets, DIY stores etc, has been forcing the smaller retailer off the high street due to

44 Regional Intelligence Unit

Enterprise sheer purchasing power. They are able to bulk buy from wholesalers and then sell their products to the consumer at a cheaper price, undercutting the smaller business to a level they simply can not compete at â&#x20AC;&#x201C; market power dominance. 4.22 Other explanations include; the cost of employer national insurance contributions pricing employment too high making it more difficult for businesses of this nature to survive. Business rates on the high streets have become so expensive only larger retailers find costs affordable. Regulation has become a minefield for small business owners, further compounded by trading in an ever litigious society, making it both risky and expensive to survive. These factors are key barriers to growth and in certain cases result in failure. 4.23 It must be noted that all of the factors above disproportionately affect the smaller business due to size. 4.24 Key concerns and priorities are highlighted from a Small Business Research Trust (SBRT) report in Figure 47 below. The number one key concern for smaller business is Tax/National Insurance, followed by Employment regulations and then Business rates. Figure 47: Key concerns and priorities of small business

Source: SBRT Quarterly survey Q4 2006

4.25 The percentage growth in turnover of small businesses with 10 to 49 employees between 2001 and 2007 is demonstrated in Figure 48 overleaf. As you can see the Northwest experienced an increase of 30.5% during this period. This result was not unique to the Northwest and positive growth in turnover was experienced by all regions. This result is odd given the widespread decline in small businesses of this size and suggests those surviving businesses are more productive.

45 Regional Intelligence Unit

Enterprise Figure 48: Percentage growth of turnover in small businesses by region 2001 - 2007 70.0

58.4

60.0

Percentage growth

50.0

46.2 39.8

40.0 30.5 30.0 22.2

20.3

18.8

20.0

23.7

10.3 10.0

0.0 South East

East of England

West M idlands

East M idlands

Yorkshire & Humber

North West

Nort h East

London

South West

Source: BIS Business Statistics 2007

Medium sized businesses (50 â&#x20AC;&#x201C; 249 employees) Figure 49: Percentage share of medium businesses by region in 2007

4.1

9.4

12.9

North East North West

16.5

Yorkshire & Humber 10.1

East Midlands West Midlands East of England

8.9 16.7

London South East

10.3

South West

11.0

Source: BIS Business Statistics 2007

4.26 Figure 49 above shows the percentage share of medium sized businesses by region in 2007. As you can see the Northwest ranks 3rd with 13% after London and the South East each with a 17% share.

46 Regional Intelligence Unit

Enterprise Figure 50: Percentage growth in medium sized businesses by region 2001-2007 5.1

6.0 4.0 1.1

2.0 Percentage growth

0.0 0.0 -2.0

West M idlands

London

South East

North West

-4.0 -4.8

-6.0

-4.3

East M idlands

Yorkshire & Humber

-1.3

East of England

North East

South West

-3.8

-8.0 -8.1 -10.0

-9.5

-12.0

Source: BIS Business Statistics 2007

4.27 Figure 50 shows the percentage growth in medium sized businesses between 2001 and 2007. As you can see the Northwest experienced a 4.3% decline between this period. In 2001 the Northwest had 3,120 medium sized enterprises which had decreased to 2,910 by 2007. The biggest decline occurred in the West Midlands at 9.5%. The only region to have experienced a proportionately significant increase was the South West at 5.1%. There is no obvious reason for a decline in medium sized businesses across most regions during this period and additional analysis is needed to fully understand this pattern. Figure 51: Percentage growth in turnover of medium sized businesses 2001-2007 40.0 35.0 35.0 29.7 Percentage growth

30.0 24.9

26.1

26.3

West M idlands

South West

25.0 20.0 15.0

11.3

12.4

11.8

14.0

10.0 5.0 0.0 South East North East

North West

East M idlands

East of England

London

Yorkshire & Humber

Source: BIS Business Statistics 2007

4.28 The picture, as with smaller enterprises, becomes more interesting when we analyse the growth in turnover between this period, which in fact increased by 12.4% in the Northwest. Again we have a situation where the actual number of enterprises decreased but overall turnover increased, although the increase in the Northwest was amongst the lowest of all the English regions. The performance of medium sized enterprises across England suggests they are becoming more productive; however, the performance of the Northwest during this period is of concern compared to the front five runners.

47 Regional Intelligence Unit

Enterprise Large businesses (250+ employees) Figure 52: Percentage share of large businesses by region in 2007

6.9

3.8 11.7 North East

18.0

North West 9.3

Yorkshire & Humber East Midlands West Midlands East of England

7.4

London South East 22.8

South West

9.7 10.4

Source: BIS Business Statistics 2007

4.29 Large businesses are defined as those with 250 employees or more. Figure 52 demonstrates the percentage share of large businesses by region in 2005. As you can see the Northwest contains an 11.7% share following the dominance of London and the South East with respective 22.8% and 18% shares. 4.30 Figure 53 highlights the percentage growth in large businesses by region between 2001 and 2007. As you can see there has been a decrease in all of the regions across England. 4.31 The Northwest experienced an 11.5% decline over this period from 690 large businesses in 2001 to 610 by 2007. The decrease in the number of large businesses is of concern given the significant contribution they make to GVA. Figure 53: Percentage growth in large businesses by region 2001 - 2007 0.0 North East

South East

London

East of England

-10.5

-10.7

North West

Yorkshire & Humber

West M idlands

East M idlands

South West

Percentage growth

-5.0 -7.0 -10.0

-9.2 -11.6 -12.6

-15.0

-17.2 -20.0

-18.9 -21.7

-25.0

Source: BIS Business Statistics 2007

4.32 Figure 54 looks at the percentage growth in turnover of large enterprises between 2001 and 2007. During this period turnover increased in the Northwest by 2.3% which is alarming, especially when a majority of the other regions experienced significant increases.

48 Regional Intelligence Unit

Enterprise Figure 54: Percentage growth in turnover of large businesses by region 2001-2007 60.0 50.0

45.8

Percentage growth

40.0 30.0

37.7

37.9

London

South East

48.0

25.2 19.4

20.0

14.9

10.0 2.3

0.0 North East

North West

South West

West M idlands

Yorkshire & Humber

East M idlands

East of England

-10.0 -20.0

-16.4

Source: BIS Business Statistics 2007

49 Regional Intelligence Unit

Enterprise 5.

Knowledge-based businesses

5.1

Knowledge-based businesses are more innovative and internationally competitive and can exploit growth conditions in key sectors and locations. This section tries to identify the performance of knowledge- based businesses in the region using the following definition: Predominantly private sector employment sectors where nationally more than 25% of the workforce is of graduate level (NVQ 4 or equivalent or higher). The data comes from the Annual Business Inquiry (ABI) using 2 digit SIC code definitions and includes the following sectors: 

Extraction of crude petroleum and natural gas; service activities incidental to oil and gas extraction excluding surveying



Publishing, printing and reproduction of recorded media



Manufacture of coke, refined petroleum products and nuclear fuel



Manufacture of chemicals and chemical products



Manufacture of office machinery and computers



Manufacture of radio, television and communication equipment and apparatus



Manufacture of medical, precision and optical instruments, watches and clocks



Manufacture of transport equipment



Electricity, gas, steam and hot water supply



Collection, purification and distribution of water



Air transport



Financial intermediation, except insurance and pension funding



Insurance and pension funding, except compulsory social security



Activities auxiliary to financial intermediation



Real estate activities



Computer and related activities



Research and development



Other business activities

5.2

According to the above definition the Northwest in 2002 contained approximately 63,059 knowledgebased businesses rising to nearly 76,753 businesses by 2006, a 21.7% increase in growth during this period. This was against an England backdrop of a 16.5% increase, therefore representing significantly higher growth in knowledge-based businesses in the region than England.

5.3

Figure 55 below demonstrates the year on year percentage share increase in the Northwest from 2003 to 2007 which increased from 10.2% to 10.7% representing a modest increase.

50 Regional Intelligence Unit

Enterprise Figure 55: Knowledge Economy Percentage Share in the Northwest 2003-7 10.8 10.7 10.7 10.6

10.5

Percentage

10.5

10.4

10.4 10.3

10.3 10.2

10.2 10.1 10.0 9.9 2003

2004

2005

2006

2007

Source: Annual Business Inquiry

Table 10: Percentage growth in Knowledge-based businesses in the regions 2003-7 Region East East Midlands London North East Northwest South East South West West Midlands Yorkshire & Humber

Growth (%) 15.5 22.5 11.7 23.5 22.5 15.3 18.6 22.6 19.4

Source: Annual Business Inquiry

5.4

Table 10 above demonstrates the percentage increase in knowledge based businesses between 2003 and 2007. The Northwest experienced a 22.5% increase during this period. The North East experienced the greatest percentage growth with 23.5%.

5.5

Table 11 looks at a breakdown of the knowledge-based industry by each individual sector during 2002-6 in the Northwest. During this period the number of businesses involved in the extraction of crude petroleum and natural gas increased by 50%, a significant rise. In contrast the region has experienced increases in significant knowledge sectors e.g. the financial intermediation sector and real estate activities. This reflects both the buoyancy in the housing market over the last ten years and a further demand for financial products.

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Enterprise Table 11: Knowledge-based business performance by individual sector in the Northwest 2003-7 Industry Extraction of crude petroleum and natural gas; service activities incidental to oil and gas extraction excluding surveying

% Growth 50

Publishing, printing and reproduction of recorded media

-6.2

Manufacture of coke, refined petroleum products and nuclear fuel

-2.3

Manufacture of chemicals and chemical products

-2.3

Manufacture of office machinery and computers

-1.3

Manufacture of radio, television and communication equipment and apparatus

9.4

Manufacture of medical, precision and optical instruments, watches and clocks

-4.7

Manufacture of transport equipment

0.4

Electricity, gas, steam and hot water supply

10.8

Collection, purification and distribution of water

31.4

Air transport

12.1

Financial intermediation, except insurance and pension funding

7.5

Insurance and pension funding, except compulsory social security

-17.9

Activities auxiliary to financial intermediation

50.8

Real estate activities

34.4

Computer and related activities

-2.1

Research and development

Other business activities

Recreational, cultural and sporting activities

10.5

Column Total

22.5

5.6

Despite the increase in the financial sector, according to members of the Regional Economic Forecasting Panel (REFP), a lot of the new financial services that have established in the region have been low value added.

5.7

When interpreting the number of Knowledge based-businesses by sector in table 11 caution must be applied. The number of businesses that reside in a particular sector does not truly reflect the impact this might have on the overall performance of the region. For example, although a business residing in a particular sector can be attributed as a knowledge-based business the activities which it undertakes could be considered low value i.e. a financial call centre.

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Enterprise 6.

Business Relocation

6.1

In order for the region to improve productivity and market growth we must understand:

6.2



The historical movements of businesses within and out of the region



The motivations behind businesses choosing to invest, expand, reduce or move investment out of the region



The motivations behind those choosing to move within the region



Why some businesses choose not to invest in the region



Why some areas within the region are more attractive than others



How the Northwest’s attractiveness compares with others



Where pockets of new entrepreneurs are based

Experian were commissioned to investigate business investment and relocation and the following evidence comes from their report ‘Business Investment and Relocation’. Business movement in and out of the Northwest

6.3

Between 2003 and 2008 around 9,600 businesses relocated themselves into the Northwest from elsewhere in the UK. The largest inflows of businesses were from London and the South East, although the region also gained over 1,000 businesses from both Yorkshire & the Humber and the West Midlands. The large scale of flows with London and the South East reflects the large business base in these two regions, whilst Yorkshire & the Humber and the West Midlands both have strong geographic connections with the key economic hubs in the Northwest.

6.4

The overall pattern of gains and losses is shown in figure 56. Although the Northwest had gained large numbers of businesses from London and the South East it had also lost significant numbers to these two regions. In terms of net gains, the Northwest did not benefit significantly from flows with any particular region. The largest net gains were from London and the South East, although relative to the size of overall flows, such gains were small: 220 from London and 150 from the South East. Figure 56: Net of gain of businesses from other parts of the UK

Source: Experian Business Investment and Relocation

6.5

In terms of sub-regional business flow, only certain Northwest sub-regions were enjoying net gains. Figure 57 details the sub-regional net gain of business for the Northwest region. Merseyside was the sub-region with the most fluctuation in terms of flow with the highest levels of inflow and outflow in the region. Greater Manchester was the region that had suffered the greatest net loss as a result of

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Enterprise business flow with a net loss of 322 businesses. In contrast, of the five sub-regions, Lancashire had enjoyed the largest net gain, although in total the net gain for Lancashire was only 175 businesses. Figure 57: Net gain of businesses in the Sub-regions

Source: Experian Business Investment and Relocation

6.6

The business survey conducted for this study allowed us to identify the motivations underpinning businesses’ decisions to move from one region to another, and this is shown in figure 58. Figure 58: Reasons for business relocation

Source: Experian Business Investment and Relocation

6.7

For those businesses moving into the Northwest, the most common reason for moving was found to be “business expansion”, which was cited by almost 35% of businesses. Given the large flow of businesses moving to the region from London and the South East, it was expected that “cost issues” and “rent increased too much” may have been more significant factors than found in the business survey. This indicates that many businesses from the South East and London did not primarily move for cost reasons but did still choose to expand operations in a more cost efficient location. This shows that businesses perceive the Northwest as an ideal location for business expansion attracted by the availability of larger premises at relatively lower costs compared to other parts of the UK.

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Enterprise 6.8

Business expansion was also cited as a key driver for moving by out-movers as well as “outgrowing previous premises”. It is interesting to note that those moving out of the region were significantly more likely to claim that their “rent increased too much” than those moving in, and were also much more likely to believe that their “traditional customers have moved”.

6.9

It has been argued in academic literature* that smaller businesses are less likely to relocate than larger businesses, in part due to their desire to locate in proximity to their home town, family or friends. Experian data on business movements into, out of and within the Northwest has added weight to such arguments, finding that larger businesses have a higher propensity to move than smaller businesses. This is shown in figure 59, which indicates that the businesses with the highest propensity to relocate are those employing over 500 employees. Figure 59: Movement of businesses by size

Source: Experian Business Investment and Relocation * See Cohen (2000) Business Location Decision Making and the Cities: Bringing Companies Back.

6.10 In addition to finding that larger businesses were more likely to move, this figure also shows that foreign businesses had a higher propensity to relocate than domestic businesses. Whilst businesses of all ownership types were more likely to relocate the larger they were, the discrepancy between large and small foreign businesses is more marked than amongst businesses with “no parent” (i.e. independent businesses). 6.11 In the graph, no parent means the business is independent and is not owned by another company. Domestic Ult means the company's ultimate parent is based in the UK and Foreign Ult means the company's ultimate parent is based outside the UK. 6.12 The analysis so far has developed a business picture of the movement of businesses into and out of the Northwest. However, it is also important to find out whether the Northwest has been gaining or losing particular types of businesses. The next section will look at the types of businesses the Northwest has been gaining and the following section will look at the types of businesses the region has been losing. 6.13 As shown in figure 60 below, it can be seen that the number of businesses moving to the region has increased dramatically over the last two years in a number of key sectors.

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Enterprise Figure 60: Movement of businesses by sector

Source: Experian Business Investment and Relocation

6.14 The most notable rise occurred in the construction sector, although almost all sectors have seen marked increases in 2006 and 2007. 6.15 Movements into the region of businesses in the energy & environmental technologies, mining, biomedical and leisure & tourism sectors have been considerably smaller, although this is to be expected given the small base of businesses in these sectors. In the mining and leisure & tourism sectors, such movements were also considerably smaller due to the reliance on local fixed factors (i.e. the location of mines and tourist attractions). 6.16 Although there has been an increase in the number of businesses moving into the region in the majority of sectors, there have also been significant increases in the number of businesses moving out of the region across most sectors. The result of such movements has been that the 6.17 Northwest has not experienced large net gains of businesses across the different sectors of the economy. 6.18 This can be seen in figure 61, which shows the net gains made across each sector between 2003 and 2007 (i.e. businesses that have moved to the Northwest from elsewhere in the UK over and above those businesses that have moved out of the region). The largest increase has been amongst construction businesses, after which the net gain (or loss) has been relatively small. 6.19 The region has suffered from net losses of a number of the Priority sectors â&#x20AC;&#x201C; namely business & professional services, digital & creative industries and advanced engineering & materials â&#x20AC;&#x201C; although again the magnitude of such changes is small. Notably, on a sub-regional level Cumbria and Lancashire have seen the best net gains of businesses. In particular, these sub-regions have attracted construction, engineering and manufacturing businesses.

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Enterprise Figure 61: Net movement of businesses between the NW and the UK

Source: Experian Business Investment and Relocation

6.20 In absolute numbers, there does not appear to be a high degree of relocation amongst biomedical and general manufacturing businesses. However, this is a reflection of the overall size of the two sectors, and figure 62 below shows that such businesses actually have a very high propensity to relocate outside of the region. Conversely, construction and food & drink businesses do not appear to have a particularly strong propensity to move despite accounting for the largest number of relocations in absolute terms. Figure 62: Number of businesses moving out of the Northwest by industry (as a percentage of all businesses in the industry)

Source: Experian Business Investment and Relocation

6.21 Figure 63 shows the proportion of businesses in each of the UK regions that have moved to a new location within the same region. The propensity of businesses to move location within the region is around the national average in the Northwest, whilst it is significantly higher in London and significantly lower in Wales.

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Enterprise Figure 63: Intra-region movement of businesses by region

6.22 Source: Experian Business Investment and Relocation

6.23 The number of businesses relocating within the Northwest has increased dramatically from 2003 to 2007 (figure 64 below). Construction, business & professional services, wholesale & retail and advanced engineering & materials sectors were the sectors most likely to relocate within the region, and it was shown above that there was also a large movement of such businesses into and out of the region. This reflects the large size of the sectors, whilst again sectors such as biomedical and mining have smaller absolute numbers of businesses relocating. Figure 64: Number of businesses moving within the Northwest by sector

Source: Experian Business Investment and Relocation

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Enterprise 7.

Headline perceptions of the Northwest

7.1

In the business survey respondents were asked how attractive they believed the Northwest was as a business location, both now and in the future. Businesses were overwhelmingly positive about the region in general; 83% either agreed or strongly agreed that the region was a good place in which to invest, whilst 78% believed it would become more attractive to investors in the future.

7.2

In terms of the priority sectors in the Northwest, 88% of businesses in the advanced engineering and materials sector believed the Northwest was currently a good place to invest. Meanwhile 73% of these businesses believed it would become more so in the future, supporting evidence from the workshop that some business had fears surrounding the future availability of venture capital for technological projects.

7.3

Similarly, 85% of firms in the business and professional services sector agreed that the Northwest was a good place for businesses to invest now, with 79% believing it would become more attractive to investors in the future. The consultations highlighted a tendency for large London-based firms in the business and professional services sector to ‘offshore’ their back-office operations to the Northwest for cost purposes, and these results, although very positive on the whole, support the concern that the region may continue to be ‘pigeonholed’ in this way and therefore not able to attract the higher value roles of the future.

7.4

In terms of the remaining priority industries, future perceptions tend to be more in line with current perceptions; 82% of businesses in both the food and drink and digital and creative sectors believed the Northwest was currently a good place in which to invest, with 80% in both sectors believing it would become more attractive to investors as a business location. Equally businesses in the biomedical and environment and energy sectors tended to be very positive about the region as a business investment location both now and in the future.

7.5

Respondents to the business survey were asked to rate the Northwest from 1 to 5 (with 1 being not very good and 5 being very good) across 18 factors [only 13 factors listed below] relating to the attractiveness of the region as an area for businesses to invest. The results of which are shown in figure 65. Figure 65: Assets of the Northwest

Source: Experian Business Investment and Relocation

7.6

The telecommunications infrastructure of the region was rated most highly by businesses, with an average score of 3.94. Significantly, this factor was rated even higher in the Northwest by businesses to which it was very important, namely the digital and creative media sector (4.17) and the business and professional services sector (3.99). This particular factor was not highlighted by businesses during the workshop or consultations, suggesting that whilst businesses recognise its quality in the region it is some what taken for granted in the UK.

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Enterprise 7.7

When answering the question about the Telecommunications Infrastructure, businesses were quite likely to have given a score of 4 if they had experienced no issues with it; therefore the score here is probably only indicative of a general perception that it was fit for their needs.

7.8

The connectivity of the region was the next most highly rated aspect with both international and internal links scoring around 3.7. Manchester airport was highlighted in the workshop as catering to a large number of foreign destinations as well as being less hassle for travellers than the much larger Heathrow. Similarly the strength of the region in terms of road and rail linkages to the rest of the UK was a theme in evidence throughout the consultations.

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Enterprise 8.

Bibliography 

Global Entrepreneurship Monitor (GEM) 2006,7,8 Rebecca Harding & Aston University



Rising to the Enterprise Challenge (2007), Enterprise Consulting



The UK Family Business Sector (2008), Institute for Family Business



Department for Business Enterprise & Regulatory Reform (BIS): o

Small and Medium Enterprises statistics (2001, 2003, 2005)

VAT registrations and de-registrations (2002 – 2005)

Business survival rates (1998 – 2006)



Annual Population Survey, Office for National Statistics (2006)



Labour Force Survey, Office for National Statistics (2004)



Quarterly Survey of Small Business in the UK Volume 24 Issue 88 (Q4 2006)



Annual Business Inquiry (Workplace), Office for National Statistics (2006)



Mid-Year Population Estimates, Office for National Statistics (2002-2006)



Business Relocation and Investment, Experian (2008)

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