North West Regional Entrepreneurship Monitor, 2009 Mark Hart Jonathan Levie
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Disclaimer This report is based on data collected by the GEM consortium and the GEM UK team, responsibility for analysis and interpretation of those data is the sole responsibility of the authors. For further information on the GEM UK project, contact: Professor Mark Hart Economics & Strategy Group Aston Business School, Aston University Aston Triangle, Birmingham, B4 7ET Email: mark.hart@aston.ac.uk
Dr Jonathan Levie Hunter Centre for Entrepreneurship, University of Strathclyde, Livingstone Tower, 26 Richmond Street, Glasgow, G1 1XH Email: j.levie@strath.ac.uk
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CONTENTS
Executive Summary
4
Introduction to GEM
6
Entrepreneurial Activity
9
Entrepreneurial People
23
Entrepreneurial Activity within the North West
37
Entrepreneurial Attitudes and Perceptions
45
Access to Finance and Barriers to Start-up
50
Policy Conclusions
53
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Executive Summary Entrepreneurship in the North West in 2009 The data collected through the Global Entrepreneurship Monitor (GEM) in the UK allows the NWDA to monitor trends in entrepreneurial activity, attitudes and aspirations among various sub-groups: for example, women, ethnic minorities, older individuals. Against this background, the GEM UK survey of 3,004 adults in the North West in 2009 produced the following highlights: As the economy was struggling to emerge from the recession in the third quarter of 2009 the level of early stage entrepreneurial activity (TEA) in the North West was 4.9% which was slightly lower but not statistically different than 12 months earlier. The TEA rate for the UK as a whole in 2009 was 5.8% which was broadly the same as 12 months earlier (5.3%). The North West was ranked 10th in a group of UK regions and nations in 2009 by TEA rate. However, the regional differences in 2009 were much narrower than in previous years and the TEA rate in the North West was not significantly different from the TEA rate in any other region. The female TEA rate in the North West in 2009 was 3.3% the same as it was in 2008 and not statistically different from the UK average (3.7%). The TEA rate for males fell from 7.6 to 6.5%. The ratio of female TEA to male TEA was just under half (46%), a slight rise since 2008 due to the fall in the male TEA rate. Only 1.4% of 18-24 year olds in the NW sample were engaged in early-stage entrepreneurial activity compared to the UK average of 3.4%. The graduate TEA rate in the North West was 5.9%, not statistically different from the UK average of 7.3%. The proportion of the non-entrepreneurial population in the North West reporting that there are good opportunities for start-up in their local areas in the next 6 months at 23% was the same as the UK average and just 3 percent lower than in 2008. Future start-up expectation rates in the North West also fell slightly from 6.1% in 2008 to 5.5% in 2009. The level of aspiration among entrepreneurs in the North West appears to be at least as high as the UK average, and in the case of job creation expectation among females, higher than the UK average by some measures. A fifth of early-stage entrepreneurs and one in seven established business owner-managers in the North West thought there were more opportunities for their business as a result of the global slowdown. Almost one in six entrepreneurs (nascent and new business owners) and established business owners in the North West in 2009 were more positive about their prospects for growth than they were before the global slowdown.
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1.
Introduction to the Global Entrepreneurship Monitor (GEM)
The Global Entrepreneurship Monitor (GEM) research consortium has been measuring entrepreneurial activity of working age adults across a wide range of countries in a comparable way since 1998. It is the worldâ€&#x;s most authoritative comparative study of entrepreneurial activity in the general adult population. GEMâ€&#x;s primary focus is on the study of three areas: 1. To measure differences in entrepreneurial attitudes, activity and aspiration between countries 2. To uncover factors which underpin these differences 3. To identify policies that may enhance entrepreneurial activity. The 2009 GEM global study was based on an analysis of adult population survey (APS) results from 55 economies (53 sovereign nations plus Hong Kong SAR and Shen Zhen province of China) and more than 170,000 adults aged 18 to 64 across the world. The core of the APS is identical in each country and asks respondents their attitudes towards entrepreneurship, if they are involved in some form of entrepreneurial activity, and if so what their aspirations for their business are. The global GEM Executive 2009 Report was published in January 20101 and can be downloaded from www.gemconsortium.org. From the survey, we examine individual entrepreneurs at three key stages: Nascent entrepreneurs (NAE): The stage at which individuals begin to commit resources, such as time or money, to starting a business. To qualify as a nascent entrepreneur, the business must not have been paying wages for more than three months. New business owner-managers (NBO): Those whose business has been paying income, such as salaries or drawings, for more than three, but not more than forty-two, months.
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Bosma, N. and Levie, J. (2009) Global Entrepreneurship Monitor 2009 Executive Report, GERA and Babson College, Babson Park, MA.
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Established business owner-managers (EBO): Those whose business has been paying income, such as salaries or drawings, for more than forty-two months.
In addition, we measure general intention to start a business by asking individuals if they expect to start a business within the next three years (FUT). Finally, we ask individuals if they have shut down a business in the past year (BC). It is important to understand that the main subject of study in GEM is entrepreneurs rather than the businesses that they run. GEM measures the entrepreneurial activity of people from intention to closure. The first two stages of active business development, the nascent entrepreneur stage and the new business owner-manager stage, are combined into one index of Total early-stage Entrepreneurial Activity, or TEA2, which is represented in the Figure 1 below.
Figure 1: The Entrepreneurial Process and GEM Operational Definitions (Source: Bosma and Levie, 2009) As much of this entrepreneurial activity is pre-start-up or includes very small new businesses that do not have to register, TEA rates will not necessarily match with
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TEA is calculated in an identical way in each country. A telephone and/or face-to-face survey of a representative sample of the adult population in each country is conducted between May and September. Respondents are asked to respond to three questions that are the basis of the TEA index: 1) “are you, alone or with others, currently trying to start a new business independently of your work?”, 2) “are you, alone or with others, currently trying to start a new business as part of your work?”, and 3) “are you, alone or with others, currently the owner or manager of a business?” Those who respond positively to these questions are also asked filter questions to ensure they are actively engaged in business creation as owners and managers, how long they have been paying wages to employees, and other questions about cost and time to start up, sources of finance and numbers of jobs created. A distinction is made between two types of entrepreneurs: nascent entrepreneurs (those whose businesses have been paying wages for not more than three months) and new business ownermanagers (those whose businesses have been paying salaries for more than three months but not more than 42 months). The TEA index is the proportion of nascent entrepreneurs and new business owner/managers (minus any double counting, i.e. those who respond positively to both are counted once) in the working age population.
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published statistics on business ownership and, indeed, should not be interpreted as such. Rather, GEM enables the measurement of the propensity of individuals in particular countries or regions to be entrepreneurial given the current social, cultural and economic framework conditions that exist there.
The methodology, sample sizes and weighting systems used for the GEM UK 2009 adult population survey are explained in more detail in Appendix 1.
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2.
Entrepreneurial Activity
2.1
How does the North West Compare?
GEM views entrepreneurship as a process in which individuals become increasingly engaged in entrepreneurial activity. In the UK in 2009, 84.7% of working age individuals were not engaged in entrepreneurial activity and had no intention of starting a business within the next three years. A further 3.8% expected to start a business in the next three years, but were not actively trying to start a business or running an existing business. A further 2.5% were nascent entrepreneurs and an additional 3.1% were new business owner/managers. Finally, 5.8% were established business owner/managers. Apart from intention to start rates, which have declined from 5.9% in 2004, the proportions have changed little since 2002.
In the North West in 2009 the proportions in each of these categories were broadly similar; 84% of working age individuals were not engaged in entrepreneurial activity and had no intention of starting a business within the next three years (Table 1). A further 3.5% expected to start a business in the next three years, but were not actively trying to start a business or running an existing business. A further 2.4% were nascent entrepreneurs (2.7% in 2008) and an additional 2.4% were new business owner/managers (2.8% in 2008).
Finally, 5.8% were established
owner/managers.
Total early-stage Entrepreneurial Activity (TEA) is the sum of the nascent entrepreneurship rate (NAE) and the new business owner/manager rate (NBO). The rate of total early-stage entrepreneurship in the North West for 2009 was 4.9%, which was not statistically different from the UK TEA rate (5.8%). Overall, a TEA rate of 4.9% equates to almost one in every twenty adults or just over 220,000 individuals in the North West which, as we have seen, were divided almost equally between those individuals in the very early stages of starting a business (nascent entrepreneurs – 51%) and those who had a new business which was between 3 and 42 months old (49%).
Table 1 displays different measures of entrepreneurial activity in regions of the UK for 2009. In London, the number of people expecting to start a business in the next three
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years was twice that reported in any of the other UK regions. Once again in 2009 London displays a unique pattern of entrepreneurial activity; it has relatively high TEA rates, a relatively low established business owner/manager rate, and a relatively high business closure rate. The ratio of EBO to TEA, a proxy of early-stage business survival, is relatively low in London while its rate of business closure to business ownership is unusually high. Overall, London consistently stands out as a high churn region.
At the other end of the activity spectrum, the South West and Scotland have relatively high ratios of TEA to EBO and low churn rates. The North East, another low activity region has relatively low TEA rates and EBO rates, but a relatively low ratio of EBO to TEA, which suggests that it may be maintaining a relatively high flow of earlystage businesses given its business stock while maintaining an average level of churn.
Turning to the North West we observe that, after London, it has the highest rate of churn of all the UK regions. Whilst high rates of churn are seen by many as a positive feature of the economy the context in which it takes place is important. In 2009 the North West had a relatively high closure rate but does not have a correspondingly high start-up rate. As a result it has above average levels of churn (i.e., 0.29 compared to the UK average of 0.19). This represents a worsening of the situation since 2008 when it had a lower level of churn which was around the UK average.
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Nascent + New business owner-manager rate
Established Business Owners (>42 months)
Business closure rate (Business closed in the last 12 months that has not continued)
Proxy early-stage business survival rate
(TEA)
(EBO)
(BC)
(EBO/TEA)
BC/ (NBO+EBO)
5.5 4.8 5.5 4.7 5.8 6.4 4.8 6.4 8.0 6.0 5.1
1.1 1.7 3.2 1.5 2.4 1.4 1.0 1.6 1.3 1.4 1.5
0.8 0.9 0.7 1.0 1.2 1.2 1.3 1.0 1.4 1.0 1.0
0.11 0.22 0.36 0.21 0.29 0.16 0.14 0.17 0.10 0.23 0.20
6.6 6.2
3.0 2.7
3.3 3.2
6.1 5.8
6.7 5.8
1.0 1.7
1.1 1.0
0.10 0.19
Proxy business churn rate
New Business Owner-manager rate (4-42 months)
6.9 5.3 7.4 4.9 4.9 5.2 3.6 6.2 5.8 6.0 5.2
Nascent Entrepreneurial Activity rate (paying wages for 3 months or less)
4.6 3.0 3.3 2.3 2.4 2.5 2.6 3.2 4.5 2.8. 2.4
(NEA) 2.3 2.4 4.5 2.7 2.5 2.9 1.1 3.1 1.4 3.4 2.8
I expect to start a business in the next 3 years 5.4 5.8 10.2 5.0 5.5 5.1 4.3 6.2 5.3 5.1 6.4
(FUT)
(NBO)
East of England East Midlands London North East North West Northern Ireland Scotland South East South West Wales West Midlands Yorkshire & Humberside UK
Table 1: Measures of Entrepreneurial Activity in the UK regions, 2009 (Source: GEM APS 2009) A comparative benchmark of entrepreneurial activity between the North West and the English regions plus Scotland, Wales and Northern Ireland is also presented in Figures 2 and 3. The North West region has exhibited average levels of early-stage entrepreneurial activity in 2007 and 2008, and while the TEA rate dipped in 2009 it was still not statistically different from the UK average. This is indicated by the vertical arrowed lines on either side of the estimate for each region. If these lines do not overlap, then there is a statistically significant difference at the 5% level between the estimates of TEA for these regions. In other words, if we took 100 different samples of the same size in a region, 95 of the estimates of TEA can be expected to
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fall within the boundaries of the vertical arrowed line. This range is known as the 95% confidence interval of the estimate. The North West is now ranked joint 10th of the 12 UK regions and nations. However, it is important to note that the distribution of TEA rates across the UK regions in 2009 was narrower than in 2002 and there was only one statistically significant difference in the regional TEA rates in 2009 – the Scottish TEA rate was significantly lower than the level of entrepreneurial activity in Wales, Yorkshire & Humberside, South East, East of England and London (Figure 3).
To summarise, the TEA rate in the North West was not statistically different from any of the other English regions or Scotland, Wales or Northern Ireland in 2009 (Figure 3).
% of adults aged 18-64
8 7
6 5 4
3
2007
2
2008
1
2009
0
Figure 2: Total Early-stage Entrepreneurial Activity in the UK Regions in 20072009 (Source: GEM APS)
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% of Adults aged 18-64
10% 9% 8% 7% 6% 5% 4% 3% 2% 1% 0%
Figure 3: Total Early-stage Entrepreneurial Activity in the UK Regions in 2009 – 95% Confidence Intervals (Source: GEM APS, 2009)
Figure 4 shows trends in TEA rates of the North West and the UK between 2002 and 2009. Looking at the 2002-2009 period we can now see that the small year on year increase (not significant) in the level of early-stage entrepreneurial activity in the North West from just over 4% in 2004 to 5.3% in 2008 has been halted in 2009. The trend in early-stage entrepreneurial activity in the North West has tracked the UK trend very closely until 2005, since when there has been a convergence to 2008.
North West
UK average
% of Adult Population
7% 6% 5% 4% 3% 2% 1% 0%
2002
2003
2004
2005
2006
2007
2008
2009
Figure 4: Total Early-Stage Entrepreneurial Activity in the North West and the UK (2002-09). (Source: GEM APS)
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2.2
Impact of Recession on Entrepreneurial Activity
In 2009, as in 2008, there was a great deal of variation in the proportion of earlystage entrepreneurs who are engaging in business start-up out of necessity (Figure 5). The share of necessity driven early-stage entrepreneurial activity ranges from 4.8% in the East of England to almost one quarter in the West Midlands (23.2%). The proportion of necessity entrepreneurial activity in the North West is slightly higher at 23% compared to 16.8% nationally. In 2008, the share was just under one in five (17.8%). London and the South East experienced the sharpest increase in necessity entrepreneurship.
2008
2009
30
Proportion of Overall TEA (%)
25
20
15
10
5
0
EE
SW
NE
SC
SE
EM
WA
NI
Y&H
GL
NW
WM
UK
Figure 5: Necessity Share of Overall Total Early-Stage Entrepreneurial Activity in the UK Regions (2008 and 2009). (Source: GEM APS) This discussion of necessity entrepreneurship in the context of an economic downturn leads directly into an analysis of new questions asked in the GEM UK survey in 2009. In 2009 the GEM survey carried questions on the attitudes of entrepreneurs to start-up and growth in the recession. Whilst starting a business in the UK has got tougher for most people since 2007, almost one in six (15.4%) earlystage entrepreneurs (nascent and new business owners) in the North West in 2009
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were more positive about their prospects for growth than they were before the global slowdown (Figure 6).
Established business owners (EBOs) in the North West are less positive than those involved in start-ups but again almost one in six (15.7%) of these owner-managers were more positive about their prospects for growth. The comparable figures for the UK were 22% and 15% respectively. These two groups of business owners have the potential to be the job and wealth creators of tomorrow.
Higher expectations for growth TEA
Higher expectations for growth EBO
40% 35% 30% 25% 20% 15%
10% 5%
0%
Figure 6: Prospects for Growth in the UK Regions, 2009. (Source: GEM APS 2009) In the North West, a fifth (20.6%) of early-stage entrepreneurs and 14% of established business owner-managers thought there were more opportunities for their business as a result of the global slowdown (Figure 7). The comparable figures for the UK were almost identical - 20% and 14% respectively.
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The economic slowdown created more opportunities TEA
The economic slowdown created more opportunities EBO
40% 35% 30% 25% 20% 15%
10% 5%
0%
Figure 7: Opportunities in a Recession in the UK Regions, 2009. (Source: GEM APS 2009)
Almost one in 20 (5.9%) of established business owner-managers in the North West thought that starting a business was less difficult than a year ago (Figure 8). Only one in seven (14.7%) of early-stage entrepreneurs in the region thought that starting a business was less difficult than a year ago. The comparable figures for the UK were 8% and 13% respectively. Obviously, the vast majority of entrepreneurs report that it is more difficult to start a business in 2009 than in 2008 but for a small group of business owners in the North West opportunities do exist for entrepreneurial actions in the region.
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Starting a business is less difficult TEA
Starting a business is less difficult EBO
18% 16% 14% 12% 10% 8% 6% 4% 2% 0%
Figure 8: Ease of Starting a Business in the UK Regions, 2009. (Source: GEM APS 2009)
2.3
Growth Potential, Innovation and Technology-Based Entrepreneurship
We commence this section with a description of the sectoral breakdown of entrepreneurial activity at its earliest stages in the North West in 2009 and how this compares to the UK (Figure 9). Entrepreneurial activity is concentrated in Business Services and Personal Services and the proportions of early stage business owners in the North West and the UK are similar.
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North West
UK
45 40
% of TEA
35 30 25 20 15 10 5 0
Figure 9: Sectoral breakdown of entrepreneurial activity in the North West, 2009 (Source: GEM UK APS 2009)
GEM has a growth potential variable which measures the percentage of all earlystage entrepreneurs who have created more than ten jobs and who expect more than 50% growth in jobs in the next five years. The results for 2009 are illustrated in Table 2 for early-stage entrepreneurs (TEA) and established business owner-managers (EBO). Overall, 16.2% of early-stage entrepreneurs in the North West described themselves as having high job expectations compared to 17.6% in the UK and 20.2% in the US. The proportion of established business owners with high job expectation in the North West is similar to that in the UK and the US.
High Job Expectation (% TEA New Product Market High or Medium tech or EBO greater than (% of all TEA or EBO) sectors (% of all TEA or ten jobs and growth EBO) >50%) TEA EBO TEA EBO TEA EBO NW 16.2 6.2 33.6 7.8 7.3 10.9 UK 17.6 5.0 25.8 10.9 8.3 9.5 US 20.2 4.6 24.7 12.0 1.9 2.9 Table 2: Growth Potential of Entrepreneurial Activity in the North West, UK and the US, 2009 (Source: GEM APS 2009)
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The anatomy of early-stage entrepreneurial activity can also be examined through two other GEM variables. GEM assesses innovation in entrepreneurial businesses in a variety of ways. First, there are assessments of early-stage entrepreneurs and established business owner-managers concerning the novelty (or unfamiliarity) of their products or services relative to customers‟ current experience. A second way that GEM assesses the innovativeness of entrepreneurial businesses is by measuring the degree of competition faced by the business, or whether the ownermanager perceives that many, few, or no other businesses offer similar products or services.
Table 2 also shows the proportion of early-stage entrepreneurs and established business owner-managers who state they operate in new product markets.3 The proportion of early-stage entrepreneurs who are engaged in a combination of new products and new markets in the North West appears higher than that reported in the other comparator countries. In essence, this index measures the percentage of early-stage entrepreneurs with novel product-market combinations. These entrepreneurs offer a product or service they believe is new to some or all customers and they also believe that there are few or no businesses offering the same product.
Finally, Table 2 indicates whether early-stage entrepreneurs and established business owners operate in “high” or “medium” technology sectors (according to OECD definitions). The North West has a similar proportion of early-stage entrepreneurs and established business owners in high or medium technology sectors as in the UK, but higher than that observed in the US in 2009. Figures 10 to 12 present these three variables for the North West in a comparative regional context. With respect to high job potential reported by nascent entrepreneurs and new business owners (i.e., TEA) and by established business owner managers the North West is close to the UK average (Figure 10).
3
Where the product is new to all or most customers and where there is little or no competition.
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TEA
EBO
% of TEA or EBO
25%
20% 15%
10% 5%
0%
Figure 10: Percentage of TEA or EBO with High Job Potential in the UK regions (2009) (Source: GEM UK APS 2009) For businesses with new product/market combinations – a proxy for innovation – the North West is in the top three regions according to nascent entrepreneurs and new business owner managers but one of the weaker regions according to established owner managers (Figure 11). Across the whole of the UK, established business owners are less likely to report their business is based on new products and/or new markets than early-stage entrepreneurs.
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TEA
EBO
40%
% of TEA or EBO
35% 30% 25% 20% 15% 10% 5% 0%
Figure 11: Percentage TEA and EBO accounted for by New Product Market (NPM) in the UK regions (2009). (Source: GEM UK 2009) Finally, with respect to engagement with new and medium technology, entrepreneurs in the North West appear to be close to the UK average in 2009 (Figure 12).
% of TEA or EBO
TEA
EBO
20% 18% 16% 14% 12% 10% 8% 6% 4% 2% 0%
Figure 12: Percentage of TEA or EBO accounted for by high technology sectors in the UK regions (2009) (Source: GEM UK APS 2009)
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3.
Entrepreneurial People
Stimulating entrepreneurial activity in the North West requires an understanding of the likelihood of various sub-groups of the population to become entrepreneurs. This section examines entrepreneurial activity in the North West by gender, age and educational background. 3.1
Gender Differences in the North West
A 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 13 illustrates the levels of early-stage entrepreneurial activity (TEA) by gender in the UK regions in 2009.
%of population aged 18-64
Male
Female
10 9 8 7 6 5 4 3 2 1 0
Figure 13: Total Early-Stage Entrepreneurial Activity by Gender in the UK Regions in 2009 (Source: GEM APS 2009) While female early-stage entrepreneurial activity in the UK remains unchanged in 2009 compared to 2008 (3.7% and 3.6% respectively), there are some important differences across the regions (Figure 13). London had the highest level of female early-stage entrepreneurial activity in 2009 at 5.5%. East Midlands, Northern Ireland, Scotland and the North East had the lowest levels of female TEA at 2.4 to 2.5%. The
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female TEA rate for the East Midlands was significantly lower than in London and Wales. Further, East Midlands, Yorkshire and Humberside and Northern Ireland also had the widest gap between male and female TEA rates: the level of female TEA was 47% that of males in the UK as a whole, but considerably lower in the East Midlands (29%), Yorkshire and Humberside (29%) and Northern Ireland (30%).
The North West in 2009 had a female TEA rate of 3.3%, which was not statistically different from the average for the UK of 3.7%. Female early stage entrepreneurial activity is 51% of male activity (TEA rate of 6.5%) in the North West, which is similar to the UK average of 47% and higher than in 2008 when it was 41%. The closing of the gap is a result of the fall in the estimate of male TEA in 2009 – a decline of 1.3 percentage points from 7.8%. The gender gap in the North West now means that for every one hundred men who start a business, only fifty-one women will also be starting up.
It is also important to look at any changes over time. As in previous years we caution 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 but 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€&#x;s early stage entrepreneurial activity in the UK regions since 2002 is illustrated in Figure 14.
North West
UK average
% of Adults aged 18-64
4.5%
4.0% 3.5%
3.0% 2.5%
2.0% 1.5%
1.0% 0.5%
0.0% 2002
2003
2004
2005
2006
2007
2008
2009
Figure 14: Total Early-Stage Female Entrepreneurial Activity in the North West and the UK, 2002-2009). (Source: GEM APS)
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Female early stage entrepreneurial activity between 2002 and 2009 has increased in the North West from 1.6% to 3.3% - however, this rise is not statistically significant. We can also observe that the level of female entrepreneurial activity in the North West has mirrored the UK trend until 2005 since when it has narrowed the gap with the UK average.
For the UK as a whole, there is a wider gap between male and female established business ownership (EBO) than for total early-stage entrepreneurial activity (TEA). Women‟s established business ownership is just 40% of such male ownership across the UK compared to a gap of 47% for TEA – the comparable figures for 2008 were 40% and 49% respectively. Established business ownership in UK regions by gender is shown in Figure 15. The North West mirrors the UK average.
All
Males
Females
% of Adult Population (18-64 years)
12%
10%
8%
6%
4%
2%
0%
Figure 15: Established Business Ownership in UK regions by Gender (2009). (Source: GEM APS 2009) The ratio of women‟s established business ownership to that of males is 35% in the North West which was the same as it was in 2008 and an increase of around 10% since 2007. The highest rates are in Scotland (59%), the South West (49%) and Wales (48%). The lowest rate is found in the East of England (26%); the UK average was 40%.
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The overall conclusion to draw is that while there has been an upward trend in female nascent and new business ownership (TEA) over the 8 years since 2002 this would appear to have levelled since the start of the recession. However, the fact that the same number of females are engaged in new venture creation in 2009 compared to 2008 might suggest that the continued effort of policy combined with the effects of the recession in the region is serving to maintain the flows of women into start-up activity.
A final point to note is that it is not just the gender gap in start-up activity or business ownership that is important from a policy perspective. There is still the issue of the growth aspiration of women-led start-up businesses compared to those led by men. In the UK overall women are significantly more likely than men to report that they do not anticipate employing anyone else in their new business and similarly are less likely to aspire to employing more than 20 employees within 5 years of start-up (Figure 16). This is where the gender gap in start-up rates becomes important as the future economic impact (in this case measured by jobs) is quite marked.
Females
Males
All
50 45
40
% of Total
35 30
25 20 15 10 5
0
No job
1-5 jobs
6-19 jobs
20+ jobs
Figure 16: Future (5 years) Job Aspiration at Start-up by Gender in the UK 2009. (Source: GEM APS 2009)
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The picture in the North West is similar with respect to the proportions expecting to employ no-one else in their start-up within 5 years (Figure 17). However, women are just as likely as men to aspire to employ more than 20 employees within 5 years and this is twice the rate observed at the national level. By contrast, women are less likely than men to report that they will be seeking to employ between 1 and 19 employees after 5 years. This profile of anticipated future job growth is different in the North West compared to the national average and particularly with respect to „high growth start-upsâ€&#x; – an encouraging feature. Females
Males
All
60
50
% of Total
40
30
20
10
0
No job
1-5 jobs
6-19 jobs
20+ jobs
Figure 17: Future (5 years) Job Aspiration at Start-up by Gender in the North West 2009. (Source: GEM APS 2009)
3.2
Age Differences in the North West
In the North West, 1.4% of young people (aged 18 to 24) are engaged in early-stage entrepreneurial activity compared to 3.4% for the UK as a whole (Figure 18). In 2008, the TEA rate for this group was 3.3%. This apparent drop is not statistically significant because of small numbers in this age group. The estimates for the UK were 4.1% in 2008 and 3.4%. Early stage entrepreneurial activity in the North West peaks for the 25-34 age group (8.4%) which is similar to that observed in the UK as a whole (8.0%). Overall, therefore, those involved in nascent or new business activity
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in the North West have a broadly similar age profile to the UK average, with the possible exception of the youngest age group.
North West
UK
9%
8%
% of Adult Population
7%
6%
5%
4%
3%
2%
1%
0%
18-24
25-34
35-44
45-54
55-64
All
Figure 18: Total Early-Stage Entrepreneurial Activity by Age in the North West and the UK in 2009 (Source: GEM APS 2009)
Probing a little deeper into the entrepreneurial propensities of young adults we can report that in the North West the level of early-stage entrepreneurial activity among young people has remained consistently below that for all ages and especially the 35-44 year old group – the age group from which the majority of new entrepreneurs come from (Figure 19). In 2009, it was just over five times lower – 1.4% compared to 7.4%. Yet, when we look at future start-up activity we find that 18-24 year olds are more positive about their future start-up intentions than 35-44 year olds and this has been consistent over the 2004-09 period (Figure 23)4. The gap is however narrower in 2009 – 6.4% compared to 6.0%.
4
The sample size for young adults in 2002 and 2003 in the North West prevents reporting of their responses to future start-up intentions.
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18-24 yrs
35-44 yrs
All
% of Adult Population
8% 7%
6% 5% 4%
3% 2% 1% 0%
2004
2005
2006
2007
2008
2009
Figure 19: Total Early-Stage Entrepreneurial Activity (TEA Rate) by Age in the North West, 2004-09. (Source: GEM APS 2004-09)
% of Adult Population in each Age Category
18-24 yrs
35-44 yrs
All
16% 14%
12% 10%
8% 6% 4% 2% 0%
2004
2005
2006
2007
2008
2009
Figure 20: Future Start-up Intention by Age in the North West, 2004-09. (Source: GEM APS 2004-09) Young adults are more likely to expect to start a business in the next three years but the reality is that they donâ€&#x;t. So, what holds young people back? Young adults in the North West, as in the UK as a whole, are less likely to report that they have the necessary skills to start a new business venture. In 2009, the gap was 13% - just over a third of 18-24 year olds (36%) compared to half of the 35-44 year olds (49%). The proportions reported for the UK in 2009 were identical to those in the North West.
27
Further, when we asked what the biggest barriers were to starting a business almost two-thirds (63.8%) of young adults (i.e., 18-24 year olds) in the UK5 reported that „getting financeâ€&#x; was the biggest barrier. This compares to half of 35-44 year olds (50%) and 54% for all age groups (i.e., 18-64 years). So, the challenge for policy is to translate the interest and desire amongst young people into entrepreneurial action and ensuring they have the relevant skills and access to start-up finance are surely achievable policy objectives.
Turning to the other end of the age spectrum we observe that the TEA rate among those of 50 years of age or older in the North West has trailed the UK by about half of one percent (0.5%) over the last four years, but over the six years since 2002, the gap appears to have narrowed. This may reflect the lead role of the NWDA, in association with the Princeâ€&#x;s Initiative on Mature Enterprise (PRIME), has played in seeking to encourage this age group to engage in entrepreneurial activity.
% of Adult Population (50+ Yrs)
North West 50+ Yrs
UK 50+ Yrs
5.0% 4.5% 4.0% 3.5% 3.0% 2.5% 2.0%
1.5% 1.0%
0.5% 0.0%
2004
2005
2006
2007
2008
2009
Figure 21: Total Early-Stage Entrepreneurial Activity (TEA Rate) for 50+ Individuals in the North West and the UK, 2004-09. (Source: GEM APS 2004-09) For TEA rates among those aged 50 or over, in 2009 the North West was ranked 9th out of the UK regions and nations although it should be noted that the 50+ TEA rate
5
Again the sample size was too small in the North West to produce robust estimates for the region.
28
for the North West is not statistically different from that of any of the other areas (Figure 22). The only statistically significant difference is between the West Midlands (2.8%) and the South East (5.5%).
6%
% of Population Aged 50-64
5%
4%
3%
2%
1%
0%
Figure 22: Total Early-Stage Entrepreneurial Activity (TEA Rate) for 50+ Individuals in the UK Regions, 2009. (Source: GEM APS 2009)
3.4
Entrepreneurship and Mobility in the North West
The GEM survey also asks how long an individual has lived in the region and it is possible to identify in-migrants to the region. Across all the UK regions levels of early-stage entrepreneurial activity for in-migrants are generally higher than for lifelong residents (Figure 23). The exceptions are the South West and the East of England. In the North West, for example, the TEA rate for in-migrants is 6.9% (6.4% in 2008) compared to 4.8% (5.1% in 2008) for life-long residents and 7.7% (6.3% in 2008) for in-migrants in the UK as a whole. These differences in the North West are not statistically significant and none of the regional differences are either due to the small numbers of migrants in the samples.
29
Migrants
Life-Long Residents
16% 14%
% of Adult Population
12% 10%
8% 6% 4% 2% 0%
Figure 23: Total Early-Stage Entrepreneurial Activity in the UK Regions by Migrant Status (2009). (Source: GEM APS 2009)
3.5
Entrepreneurial Activity by Educational Qualification
The average level of total early-stage entrepreneurial activity for graduates in the UK in 2009 was 7.3% (6.8% in 2008). The level of graduate early-stage entrepreneurship in the North West was 5.9% of graduates currently residing in the region – a slight but not statistically different increase of 1% since 12 months ago (Figure 24). There is a great deal of variation across the UK regions and the North West is ranked 10th with the East of England (9%) and the West Midlands (8.9%) the top two regions - as they were 12 months previously. However, the only significant difference again in 2009 is between Scotland (4.4%) and these top two regions.
30
Graduates
Non-Graduates
10% 9%
% of Adult Population
8% 7% 6% 5% 4% 3% 2% 1%
0%
Figure 24: Total Early-Stage Entrepreneurial Activity in the UK Regions by Graduate Status, 2009. (Source: GEM APS, 2009) While the proportion of graduates in the UK portray relatively stable levels of nascent and new business ownership activity in the 8 years to 2009 trends in graduate entrepreneurship in the North West have been more volatile, probably because of the smaller sample sizes (Figure 25). On average, 6.2% of graduates in the North West are engaged in new venture creation in the period compared to 7.7% in the UK overall – a difference that is not statistically significant.
% of Graduate Adult Population
North West
UK average
9% 8% 7% 6% 5% 4% 3% 2% 1% 0%
2002
2003
2004
2005
2006
2007
2008
2009
Figure 25: Total Early-Stage Entrepreneurial Activity by Graduates in the North West and the UK, 2002-09. (Source: GEM APS, 2002-09)
31
Figure 24 suggests that graduates are more likely than non-graduates to be engaged in entrepreneurial actions but that the gap in the North West in 2009 was one of the smallest. Recent research by the GEM UK team6 has revealed that enterprise education and training at college or university (or at school for non-graduates) does have a discernable positive effect on skills self-perception, while work placement whilst at school or college had a significant effect on both opportunity perception and skills self-perception – key aspects of future entrepreneurial actions.
This suggests that a combination of enterprise classes in formal education and placements could make a measureable difference to the entrepreneurial capacity of the North West region and help increase the numbers of graduates and nongraduates seeking to start their own business. We will return to this issue in the final chapter of this report.
6
Levie, J; Hart, M and Anyadike-Danes, M (2009) “The Effect of Business or Enterprise Training on Opportunity Recognition and Entrepreneurial Skills of Graduates and Non-Graduates in the UK� Frontiers of Entrepreneurship Research, Babson College, USA.
32
4.
Entrepreneurial Activity within the North West
4.1
Introduction
For policy makers to have a clear picture of where some of the gaps are, they need to understand levels of entrepreneurial activity at a sub-regional level. The issue is to establish at what sub-regional scale the analysis should be undertaken. We develop the sub-regional analysis this year by reporting on work that was commissioned by the Mersey Partnership for the Liverpool City Region (LCR) and compare trends in entrepreneurial activity and behaviour with the rest of the North West region. To this we have added our own analysis of the Manchester City Region (MCR). In addition, we have undertaken analysis for the Commission of Rural Communities (CRC) and are able to present for the first time an urban/rural analysis for the North West region which adds to the LAD analysis we reported in last year‟s report. Finally, we report estimates for the combined 2002 to 2009 period for NUTS2 regions within the North West.
4.2
North West - a Tale of Two Entrepreneurial Cities?7
In summary, the findings from the GEM pooled dataset (2003-08) show that the pattern of entrepreneurial behaviour (new venture creation), attitudes and perceptions are different in the Liverpool City Region compared to the rest of the North West region and the UK overall. The descriptive analysis of the pooled GEM UK dataset for the Liverpool City Region has revealed some evidence of a „deficit‟ in terms of entrepreneurial activity. For example, compared to the rest of the North West region there are fewer new firms being established (Figure 26).
The level of total early-stage entrepreneurial activity (TEA) in the Liverpool City Region (LCR) is significantly lower than that observed in the rest of the North West region and the UK in the period 2003-08: 3.7% compared to 5.0 and 5.8% respectively. The TEA rate for the LCR is significantly lower than in London (7.2%),
7
Hart, M and Levie, J (2010) “Entrepreneurship in the Liverpool City Region, 2003-08” (available from the authors).
33
Manchester (5.5%) and Birmingham (5.5%) and indeed the average for 21 cityregions across the UK (5.1%). More importantly, the difference between the city regions of Liverpool and Manchester is statistically significant.
7%
% of Adult Population (18-64 years)
6%
5%
4%
3%
5.8%
5.5% 2%
5.0%
5.1%
North West
All UK City Regions
3.7%
1%
0%
Liverpool CR
Manchester CR
UK
Figure 26: Total Early-Stage Entrepreneurial Activity in the North West and the UK, 2003-08. (Source: GEM APS, 2003-08) There are clear differences in early-stage entrepreneurial activity in terms of, for example, gender (fewer women), age (fewer young people) and education (fewer graduates) between the Liverpool City Region and the rest of the North West region and the UK overall. There would appear to be an „entrepreneurial deficit‟ within the city. However, the multivariate analysis8 that was undertaken for the Mersey Partnership pointed to only a very slight negative effect of the city itself on the likelihood of individuals setting up their own business in the North West and this effect is not significant. The implication here is that, once we control for individual
8
We estimate a logistic regression to provide the „odds ratios‟ for the individual variables in the model. The dependent variable is the TEA rate and takes the value of „1‟ if the respondent is either a nascent or a new business owner and „0‟ otherwise. The independent variables used in the multinomial regression models are as follows. We are naturally constrained by the range of variables collected as part of the GEM UK survey. The key variables here are the demographic characteristics of the respondent (age, sex and ethnicity), some personal attributes (household income, migrant status (i.e., arrived in the region less than 5 years ago), employment status and education),
34
demographics and attributes of the population there is no additional effect of being a resident in the Liverpool CR – either positive or negative. The same is true if we repeat the analysis substituting the Liverpool dummy with a Manchester dummy in the model – the sign for Manchester is positive, as we might expect from the results presented in Figure 29, but it is not significant and the model is almost identical in every other respect. We have now run further separate models for Liverpool (n=1,468 respondents) and Manchester (n=2,049 respondents) to try to identify differences in the drivers of entrepreneurial activity in the two cities. The results of the multivariate analysis indicate that there are important differences between the factors driving nascent and new business ownership in the two cities. They can be summarised as follows: Liverpool – only gender is significant in the model - men are twice as likely as women to indicate that they are in the process of setting up a new business. Manchester – gender too is significant in the model – almost identical to that observed in the model for Liverpool but in addition, age and income were also significant. Individuals aged 35-44 years and those residing in high income households (i.e., greater than £50k) were significantly more likely to indicate that they were in the process of setting up a new business. The implication we again draw from this is that the „entrepreneurial deficit‟ we observe in Liverpool when compared to Manchester may be related to the „hollowing out‟ of the age profile in the LCR that is evident in national population statistics. In effect, younger individuals who are more able (i.e., more skilled and asset rich) leave the city. In Manchester, these individuals are an important stimulus to entrepreneurial activity (Figure 27).
35
8%
% of Population Aged 35-44 years
7%
6%
5%
4%
7.4%
7.1% 6.4%
3%
2%
3.6%
1%
0%
Liverpool CR
Manchester CR
North West
UK
Figure 27: Total Early-Stage Entrepreneurial Activity in the 35-44 Year Old Age Group in Liverpool, Manchester, the North West and the UK, 2003-08. (Source: GEM APS, 2003-08)
4.3
Entrepreneurial Activity in Rural Areas in the North West
In last yearâ€&#x;s GEM report for the North West region we presented Local Authority (LA) analysis for the first time and clearly showed that some rural LAs recorded the highest TEA rates in the North West regions – for example, Ribble Valley and South Lakeland. As a result of some recent work on the GEM UK pooled dataset (2004-08) for the Commission of Rural Communities (CRC) we are now in a position to report more formally on the urban-rural dimension of entrepreneurial activity in the North West. That piece of work provided an opportunity to revisit the postcode data held within the GEM UK pooled dataset and allocate to the standard urban-rural categories in England used by the ONS and DEFRA9.
9
One of the first tasks was to verify the location data for each of the respondents in the GEM dataset and to allocate to the standard ONS definitions of rural urban locations in England. We use postcode information (verified by the GEM UK survey vendor for this bespoke analysis for CRC) and translated this directly into the ONS 8-fold rural urban categories. However, to avoid issues of small sample size we reduce this to 5 categories using the DEFRA methodology.
36
It is clear that the pattern of entrepreneurial behaviour (new venture creation), attitudes and perceptions are very different in rural locations across England10. More importantly, there are significant differences emerging between rural locations in England and in particular with respect to some positive aspects of entrepreneurial behaviour in sparse and dispersed rural locations as well as rural villages. The multivariate analysis shows that after controlling for a range of characteristics (i.e., age, gender, education, income etc) individuals in all rural locations are significantly more likely than individuals in urban locations to be engaged in the creation of new business ventures. To what extent does that conclusion hold for the North West region?
North West
England
10% 9% 8%
% of Adult Population
7%
6% 5% 4% 3% 2%
1% 0%
Urban
Rural Towns
Rural Villages Dispersed Rural
Sparse Rural
All Rural
Figure 28: Total Early-Stage Entrepreneurial Activity in Urban and Rural Areas in the North West and England, 2004-08. (Source: GEM APS, 2004-08) Figure 28 shows that with one exception the pattern in the North West is broadly similar to that observed in England as a whole. The incidence of nascent and new business ownership (the GEM TEA rate) is higher in rural areas than in urban areas in the North West: 6.7% compared to 4.8% (marginally insignificant). This is particularly the case in rural villages and dispersed rural settlements. However, it is
10
Hart, M and Levie, J (2010) “Entrepreneurship in English Rural Regions: 2004-08�, Report for the Commission of Rural Communities. Copies available from the authors.
37
noticeable that the level of early-stage entrepreneurial activity in sparse rural areas appears lower than that observed in England as a whole: 5.7% compared to 9.3%. This difference, however, is not statistically significant. Probing a little further into this „rural deficitâ€&#x;, Figure 29 shows that it is female entrepreneurship in these sparse rural areas which is lagging behind that observed in England as a whole. It is also interesting to note that early-stage entrepreneurial activity among women is slightly higher in rural villages and dispersed rural settlements than in England as a whole – these differences, however, are not statistically significant.
North West
England
9%
8%
% of Adult Population
7%
6%
5%
4%
3%
2%
1%
0%
Urban
Rural Towns
Rural Villages Dispersed Rural
Sparse Rural
All Rural
Figure 29: Female Total Early-Stage Entrepreneurial Activity in Urban and Rural Areas in the North West and England, 2004-08. (Source: GEM APS, 2004-08)
We conclude this section on urban-rural patterns of entrepreneurial activity by running another logistic regression to provide a more robust estimate of the effect of rurality on entrepreneurial activity in the North West region. After controlling for a range of characteristics (i.e., age, gender, education, income etc) individuals in all rural locations are significantly more likely than individuals in urban locations to be
38
engaged in the creation of new business ventures. Indeed, the strength of the rural effect is slightly stronger in the North West compared to England as a whole.
Although the models are almost identical an important difference, which was introduced in the previous chapter, is the weak effect of being a graduate in the North West model – the variable is not significant. Also of note is the strength of the immigrant variable in the North West model. Being an immigrant in the North West exerts an even stronger influence on the likelihood of being an entrepreneur (i.e., a nascent or new business owner) compared to that observed in England as a whole. It increases the „odds‟ that an immigrant will be an entrepreneur compared to the odds that a non-immigrant will be an entrepreneur by almost 2 compared to just over 1.1 times. For example, let us assume that the odds of a non immigrant being an entrepreneur was 1 in 20 in both the UK and the North West. In the North West, the odds of an immigrant being an entrepreneur would be 1.88 in 20, or almost 1 in 10, while in the UK it would be only 1.13 in 20.
Independent Variables yrsurv rural Males age agesquared Migrants Immigrants Graduates inc50kplus
England North West 1.02 1.10 1.32 1.45 2.15 2.04 1.13 1.10 1.00 1.00 1.45 1.32 1.13 1.88 1.27 1.18 1.40 1.47
Table 3: Logistic Regression Results: Likelihood (‘Odds Ratios’) of being an Early-Stage Entrepreneur in England and the North West (Model 1)
4.4
Place Matters!
What we are able to conclude from this analysis of the sub-regional geography of the North West region is that place matters. First, we observed that the two cities in the region have different entrepreneurial trajectories with Manchester having a significantly higher level of early-stage entrepreneurial activity than Liverpool. We were also able to connect this difference to age and income and emphasise the earlier point that there would appear to be a detrimental „lagged‟ effect on the
39
entrepreneurial capacity of Liverpool as more and more young adults are leaving the city.
Second, we have shown that rural areas in the North West, as elsewhere in England, display higher rates of entrepreneurial activity than urban areas (i.e., including towns and not just the two cities of Liverpool and Manchester). This finding is independent of the demographic and attributes profile of the population living in urban and rural areas – in other words there is a strong positive effect on start-up activity reported by people living in rural areas which is not connected to their characteristics alone. IN interpreting the differences in TEA rates of different NUTS2 regions in the North West for the 2002 to 2009 period displayed in Figure 30, these nuances need to be borne
% of Adult Population aged 18-64
in mind.
7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% .0%
Figure 30: Total Early-Stage Entrepreneurial Activity in NUTS2 regions in the North West and England, 2002-09. (Source: GEM APS, 2002-09. Note: These are averages over the total 2002 to 2009 combined database, and do not adjust for differences in sample sizes in different years.)
40
5.
Entrepreneurial Attitudes and Perceptions
GEM has developed a number of attitudinal statements which provide a proxy for entrepreneurial potential in a country/region. They include knowing a person starting a business in the last 2 years, perception of good opportunities for start-up, self belief in possessing the relevant skills to set up in business and the importance of fear of failure as a deterrent to setting up in business.
It is increasingly being realised that GEM attitudinal data is best treated at the group rather than individual level, because individuals who are already entrepreneurs may feel compelled to provide positive answers in the Adult Population Survey (APS). Here, in a departure from previous years, we report attitudinal data only for that portion of the population who are not already entrepreneurs.
Between 2008 and 2009 for the UK overall there was a reduction in the percentage of people who thought there were good opportunities to start a business in their local area from 27% to 23%. The other main entrepreneurial attitudes in the UK (start-up skills; fear of failure and know and entrepreneur) were static between 2008 and 200911.
The self-reporting of attitudes of the non-entrepreneurially active working age population towards entrepreneurship in each UK region/nation in 2009 is presented in Table 4. The key findings are as follows: The item “I personally know someone who has started a business in the last two years� is intended as a proxy measure of networking with entrepreneurial individuals. Londoners were significantly more likely to agree with this item than respondents in any other region. Respondents in the East of England region were significantly more likely to agree with this item than respondents in West Midlands, East Midlands, Yorkshire & Humberside, and Wales. London had the highest proportion of the non-entrepreneurially active population reporting that there were good start-up opportunities in their local area in the next 6 months at 28%, significantly above West Midlands, North East, Wales and 11
Refer to the GEM UK 2009 Monitoring Report for the trend data.
41
Northern Ireland. Opportunity perception fell sharply between 2008 and 2009 in Scotland (down 12 percentage points), East of England (down 9 percentage points), and South East (down 7%). None of the estimates of fear of failure are significantly different from each other, because of the small proportion of people who both saw good opportunities and feared failure in 2009. When the requirement that only those who see good opportunities is removed, then the point estimate for Northern Ireland (44%) is significantly higher than that of the East region (33%), and the unusually low estimate for the South West disappears (37%). Half of respondents in London thought they had the skills to start a business; this was the highest proportion of respondents in any region, and significantly higher than in the North East, Scotland, and Northern Ireland. Northern Ireland had the lowest percentage of adults agreeing that they have the skills to start a business
Fear of failure would prevent me from starting a business (for those who agree there are good startup opportunities)
I have the skills, knowledge and experience to start a business
There will be good start-up opportunities where I live in the next six months
I personally know someone who has started a business in the last two years
(37.1%).
East of England 28.5 22.9 44.7 36.8 East Midlands 19.6 23.4 42.8 35.9 London 40 28.3 50.0 37.7 North East 22.5 19.7 41.0 34.0 North West 21.7 23.1 44.1 38.5 Northern Ireland 22.4 17.0 37.1 41.5 Scotland 22.1 21.2 39.9 34.1 South East 22.3 24.5 45.8 30.7 South West 21.2 24.4 44.7 23.6 Wales 21.2 20.4 45.2 34.0 West Midlands 21.2 19.9 43.2 40.5 Yorkshire & 21.1 20.9 45.6 41.0 Humberside United Kingdom 23.4 23 44.5 35.2 Table 4: Perceptions of Entrepreneurship among Non-entrepreneurially Active Individuals in the UK regions, 2009 (Source: GEM UK APS 2009)
42
The North West set of four core GEM attitudes in 2009 are broadly similar to that for the UK overall with very small, but not statistically significant, differences with respect to perception of start-up skills (slightly lower) and whether they knew an entrepreneur in the previous 12 months (again slightly lower). In the North West, 21.7% of individuals state that they know an entrepreneur, similar to the UK as a whole (Figure 31). In the North West two-fifths (44.1%) of nonentrepreneurs believe they have the skills to set up in business compared – again similar to the UK average. Only London has higher proportions (just over half) reporting they have the skills to set up a business. The proportion of the population reporting that the fear of failure would prevent them starting a business is the same in the North West (37.7%) as in the UK overall – just under two-fifths. This is a proportion that has not changed significantly throughout the recession.
North West
UK
50%
% of Non-Entrepreneurial Population
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%
Know an Entrepreneur
Good Start-up Opportunities
Possess Start-up Skills
Fear of Failure
Figure 31: Entrepreneurial Attitudes and Perceptions in the North West and the UK (2009). (Source: GEM APS, 2009) The perception of start-up opportunities in the North West is identical to the UK average (23% respectively) and still significantly lower than the level reported by respondents in the North West in 2007 (i.e. 32.6%). The sharp fall between 2007 and
43
2008 in the North West was not repeated in the last 12 months and there has been a negligible fall between 2008 and 2009.
Looking to the future, the proportion of adults in the North West who expect to start a business within the next three years has fallen slightly in 2009 compared to 12 months earlier: 5.5% compared to 6.1 (Figure 32). This has mirrored the UK trend which saw a fall from 6.8 to 6.2%. Both these declines in 2009 are not significant. There has been a steady fall in future start-up intentions in the North West since 2007 – at the onset of the recent economic downturn.
% of Adult Population
North West
UK average
10% 9% 8% 7% 6% 5% 4% 3% 2% 1% 0%
2002
2003
2004
2005
2006
2007
2008
2009
Figure 32: Future Start-up Expectations (within 3 years) in the North West and the UK, 2002-09. (Source: GEM APS)
Men are more likely than women to report that they intend to start a business in the next three years in the North West (Figure 33). In 2009, 3.3% of women in the North West were expecting to start a business in the next 3 years compared to 7.6% of men. The North West has one of the lowest rates of female future start-up intentions and the gender gap is larger than in other regions. In the UK 8.5% of males and 3.9% of females reported that they expected to start a business in the next three years. Only London recorded a significantly higher rate of future start-up intentions than respondents in the North West.
44
% of Adults aged 18-64
15% All
Males
Females
10%
5%
0%
Figure 33: Future Start-up Expectations (within 3 years) in the UK Regions by Gender, 2009. (Source: GEM APS, 2009)
45
6.
Access to Finance and Barriers to Start-up
6.1
Finance
This section examines for the North West the sources of finance that all nascent and new business entrepreneurs have accessed in the region to enable them to start their business. Table 5 shows that people in the North West are most likely to finance their business by overdraft and friends and family, although there has been a drop since 2008 of the number accessing finance from friends and family. This is a slightly lower proportion now in the North West compared to the UK overall. The other sources of finance are also broadly in line to the frequency of use for the UK.
North West
UK
(n=104) 26.0
(n=1,031) 26.4
Friends and family
18.6
23.8
Unsecured bank loan
10.3
14.9
Mortgage or other secured loan
12.5
14.6
Credit cards
14.9
16.8
Government grants
9.2
8.8
Individual investor (not related or known)
8.6
12.1
Non bank unsecured loan
4.7
5.2
Equity finance
2.5
4.6
Overdraft
Table 5: Finance sources accessed in the North West and the UK 2009 (Source: GEM UK APS 2009) Table 6 presents the main reasons why individual entrepreneurs have not succeeded in gaining access to external finance in the North West and how this compares to nascent and new business owners in the whole of the UK.
46
Total North West (n=104) 19.8
(n=1,031) 46.6
Business too small
22.5
31.7
Nature of business
22.7
35.4
Fear of debt
18.8
27.6
Not investor ready
40.0
29.0
Unwilling to share ownership
4.7
21.2
Inadequate business plan
15.0
17.4
Weak management team
0.0
4.8
Cost of finance too high
UK
Table 6: Comparison of the reasons for not accessing particular sources of finance in the North West and UK, 2009 (Source: GEM UK APS 2009) The main reason that entrepreneurs in the North West cite as a cause of lack of success in accessing finance is that the business was not investor ready - a slightly higher proportion than in 2008. This is often because the business does not have the growth potential commensurate with the risks involved in lending to the business. The level of fear of debt was well below UK rate which suggests those in the region were perhaps more confident in the summer of 2009 as to the future growth of the business and consequently are less cautious. Interestingly, from the potential of future survival and growth new business owners in the North West were more willing to share the ownership of the business if it meant they could attract external investment.
6.2
Barriers to starting a business
Finally, the reasons why respondents will “avoid� starting a business are set out in Table 7. People in the North West have similar reasons to the whole of the UK as to why they have not started up a business. We need to remember that the survey was undertaken in the Spring and Summer of 2009 (May to September) and the recession was still officially progressing. That is an important contextual point as we discuss these results. Obviously, this will explain the very small percentage of
47
respondents in the North West and at national level who report that the current economic climate would prevent them from starting a business. The main reason, which is slightly higher than in previous years, is that individuals cite that they fear that they would not be able to get the finance to start a new business venture. In the middle of the recession in 2009 and the continuing press reporting of trends in bank lending this is likely to have intensified.
North West
UK
(n=1,879)
(n=17,335)
Fear of not getting finance
56.9
54.3
Lack of interest
18.0
18.4
Fear of debt
5.3
4.8
Lack skills to start business
16.5
15.0
Age
9.4
9.0
Too much commitment
11.3
10.9
No idea
9.6
11.0
Chance business might fail
11.6
10.4
Bureaucracy/tax/paperwork
3.4
3.0
Loss of Security/Loss of Income
14.7
14.1
Economic Climate at the Moment
6.4
5.9
Table 7: Reasons for not starting a business in the North West, 2009 (Source: GEM UK APS, 2009)
48
7.
Policy Conclusions
In the evolving context of a new Government and their emphasis on a private sector led recovery, developing enterprise and an enterprise culture must remain key policy objectives within the North West. The slow emergence from the current economic downturn together with a change of government has presented a new and unanticipated challenge to policymakers seeking to develop an enterprise culture within the UK and its regions.
The evidence from the GEM 2009 survey (conducted in the period May-September) about the level of entrepreneurial activity and attitudes towards entrepreneurial behaviour in the North West can be summarised as follows: As the economy was struggling to emerge from the recession in the third quarter of 2009 the level of early stage entrepreneurial activity (TEA) in the North West was 4.9% which was slightly lower than 12 months earlier – the difference was not significant. The TEA rate for the UK as a whole in 2009 was 5.8% which was broadly the same as 12 months earlier (5.5%).
The perception of good opportunities for start-up by the non-entrepreneurial population in the region has declined again in 2009 but less sharply than between 2007 and 2008.
Allied to this residents in the North West also report that start-up expectation rates are lower in 2009 than in 2008.
This has not yet translated into
significantly lower levels of early-stage entrepreneurial activity in the region.
There is evidence to suggest that, as the economic downturn intensified in the middle of 2008, that a significant minority of those already running businesses in the region (nascent; new and established business owners) were reporting opportunities for growth compared to 12 months previously.
o
Almost one in six entrepreneurs (nascent and new business owners) and the same proportion of established business owners in the North
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West were more positive about their prospects for growth than they were before the global slowdown. o
A fifth of early-stage entrepreneurs one in seven established business owner-managers in the North West thought there were more opportunities for their business as a result of the global slowdown.
Detailed analysis of the GEM UK datasets has identified some issues that require attention from the point of view of policy deliberation and action in the North West. These include: o
Young adults (18-24 year olds) appear to be less likely to be engaged in entrepreneurial activity – yet, when asked, they report that they would very much like to set up and run their own business. This is an obvious fertile territory for action.
o
GEM analysis has shown that compulsory training in starting a business while at school increases the odds of someone later trying to create new business activity for their employer by 3 times and for themselves by almost 2 times. However, voluntary training in school has no effect.
o
Entrepreneurship education also provides a suitable context for the wider employability skills that enterprise education in the wider sense brings. We also know from other research in GEM that enterprise training in the UK serves to enhance the ability of individuals to identify opportunities for start-up. This will serve to boost the number of people who want to start their own business by a factor of over two.
o
Place matters! – especially in the regionâ€&#x;s urban areas - area-based policies with respect to entrepreneurial intentions and activity are important and the new arrangements for delivery of enterprise support delivery under the new Coalition Government may provide an opportunity for action.
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o
Need to „short circuit‟ the demographic trends in the region – it would appear that the young people that are leaving are the more entrepreneurial. Possibly, placement programmes might help to anchor them in the region before they leave.
o
Finally, the challenge must be to grow the private sector in the region and this demands a greater understanding of where start-ups „fit‟ in the evolution of a business stock over time – and where and how public policy can make a difference.
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APPENDIX 1:
GEM UK SAMPLING AND WEIGHTING METHODOLOGY
GEM UK is one of the largest, longest-running national studies of entrepreneurial activity in the world, with over 230,000 individuals interviewed since monitoring began with a sample of 1,000 adults in 1998. In 2009, 30,003 adults aged 16-80 were interviewed. The distribution of respondents is not even across the UK. This is because some Regional Development Agencies (RDAs) and the Devolved Administrations, Government Agencies and Organisations in Wales, Northern Ireland and the West Midlands choose to boost their sample in order to have more detail about entrepreneurship in their region12. The raw sample of 30,003 was distributed across 14 geographic areas within which representative sub-samples of the population aged 16-80 were taken. These areas and the sample sizes are: South West: 1002; South East: 2995; East of England: 998; Birmingham: 1543; West Midlands excluding Birmingham: 2455; East Midlands: 3004; Yorkshire & Humberside: 2999; North East: 3000; North West: 3004: Wales: 2998; Scotland: 1999; London: 1006; Belfast: 1301; Northern Ireland excluding Belfast: 1699. The Scottish sample was paid for by the Hunter Centre for Entrepreneurship from its endowment income.
Every attempt is made to ensure that the results reported are as reliable and robust as possible. To do this, four sets of weights are calculated for the UK data: Weights for the whole UK that take the UK area sub-samples and the age, gender and ethnic minority proportion of the population of the UK (aged 18-64) into account, based on the latest available area estimates from the UK Office of National Statistics, typically mid-year estimates for the previous year.
Sub-sample area weights that take into account the population distributions within GEM UK sub-sample areas by age, gender and ethnicity. These are used when we report comparisons between GEM UK sub-sample areas.
12
The raw sample of 30,003 was distributed across 14 geographic areas within which representative sub-samples of the population aged 16-80 were taken. These areas and the sample sizes are: South West: 1002; South East: 2995; East of England: 998; Birmingham: 1543; West Midlands excluding Birmingham: 2455; East Midlands: 3004; Yorkshire & Humberside: 2999; North East: 3000; North West: 3004: Wales: 2998; Scotland: 1999; London: 1006; Belfast: 1301; Northern Ireland excluding Belfast: 1699. The Scottish sample was paid for by the Hunter Centre for Entrepreneurship from its endowment income.
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Government Official Region (GOR) weights that create representative samples at the GOR level from all sub-samples within the same GOR. Ten out of twelve GORs were not sub-sampled in 2009; the West Midlands had one over-sample (Birmingham) and Northern Ireland had one over-sample (Belfast)13.
In addition, separate weights were constructed for England, based on balanced GOR samples for each English region, as some variables (e.g. urbanity, deprivation) are only available for English regions.
13
In order to minimise the effect of over-samples in sub-regions within a GOR, random samples were created from these areas to produce representative samples of GORs.
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