MOD001093 MOD001093 ENTREPRENEURSHIP AND ENTREPRENEURSHIP AND INNOVATION: INNOVATION: NATIONAL & NATIONAL & INTERNATIONAL CONTEXT INTERNATIONAL CONTEXT OF SMES OF SMES Prof.Stephen Ong Prof.Stephen Ong BSc(Hons)Econs (LSE), MBA (Bradford) BSc(Hons)Econs (LSE), MBA (Bradford) Visiting Professor, Shenzhen University Visiting Professor, Shenzhen University Academic Fellow, Entrepreneurship & Innovation, Academic Fellow, Entrepreneurship & Innovation, The Lord Ashcroft International Business School, Anglia The Lord Ashcroft International Business School, Anglia Ruskin University Cambridge UK Ruskin University Cambridge UK MBA ANGLIA RUSKIN UNIVERSITY MBA ANGLIA RUSKIN UNIVERSITY
Transcript
MOD001093 MOD001093 ENTREPRENEURSHIP AND ENTREPRENEURSHIP AND
INNOVATION: INNOVATION: NATIONAL & NATIONAL &
INTERNATIONAL CONTEXT INTERNATIONAL CONTEXT OF SMESOF SMES
Prof.Stephen OngProf.Stephen OngBSc(Hons)Econs (LSE), MBA (Bradford)BSc(Hons)Econs (LSE), MBA (Bradford)
Visiting Professor, Shenzhen UniversityVisiting Professor, Shenzhen UniversityAcademic Fellow, Entrepreneurship & Innovation,Academic Fellow, Entrepreneurship & Innovation,
The Lord Ashcroft International Business School, Anglia The Lord Ashcroft International Business School, Anglia Ruskin University Cambridge UKRuskin University Cambridge UK
MBA ANGLIA RUSKIN UNIVERSITY MBA ANGLIA RUSKIN UNIVERSITY
Today’s Overview Today’s Overview
LEARNING OBJECTIVESLEARNING OBJECTIVES To examine the economic To examine the economic
significance of start-ups, small significance of start-ups, small businesses and their potential businesses and their potential growth into medium-sized growth into medium-sized enterprises. enterprises.
To review government policies To review government policies and support of SMEs.and support of SMEs.
To compare SMEs in different To compare SMEs in different countries. countries.
To evaluate the stages of growth To evaluate the stages of growth of SMEs. of SMEs.
THE ROLE OF THE ROLE OF SMESSMES
TEA (2011) Malaysia = 4.9%
Japan = 5.2%Singapore = 6.6%
UK = 7.3%USA = 12.3%
Thailand = 19.5%China = 24%
SME DEFINITIONSME DEFINITIONDTI definition of SMEs (based on DTI definition of SMEs (based on
European Union definition)European Union definition) Micro : 0 – 9 employeesMicro : 0 – 9 employees Small : 0 – 49 employees Small : 0 – 49 employees
(includes micro)(includes micro) Medium : 50 – 249 employeesMedium : 50 – 249 employees Large : 250 or more employeesLarge : 250 or more employees
(There are also independence (There are also independence criteria and financial limits)criteria and financial limits)
Entrepreneurship & Small Business
Every year U.S. Every year U.S. entrepreneurs launch entrepreneurs launch 550,000 new 550,000 new businesses.businesses.
GEM study: GEM study: 18.7% of 18.7% of adult population in the adult population in the U.SU.S . is actively involved . is actively involved in trying to start a new in trying to start a new business. business.
Firm Size and Employment Firm Size and Employment (UK)(UK)
Small and medium-sized Small and medium-sized enterprises - the backbone of enterprises - the backbone of German economyGerman economy The German economy - approx. 3.4 The German economy - approx. 3.4
million small and medium-sized million small and medium-sized businesses and self-employed businesses and self-employed professionals in skilled trades, professionals in skilled trades, industrial trades, commerce, industrial trades, commerce, tourism, services and other tourism, services and other professionals.professionals.
represent 99.7 % of all businesses represent 99.7 % of all businesses in Germany,in Germany,
produce 40.8 % of the taxable produce 40.8 % of the taxable turnover,turnover,
provide 70.5 % of jobs provide 70.5 % of jobs andand train 83.4 % of all apprentices.train 83.4 % of all apprentices.
U.S. Small U.S. Small Businesses ...Businesses ... Make up Make up 99.7% of the 30.14 99.7% of the 30.14
million businesses in the U.S.million businesses in the U.S. Employ Employ 51% of the nation’s 51% of the nation’s
private sector workforce.private sector workforce. Create more jobs than big Create more jobs than big
businesses.businesses. 60% to 80% of net new jobs 60% to 80% of net new jobs
over the last decadeover the last decade Are leaders in offering Are leaders in offering
training and advancement training and advancement opportunities to workers.opportunities to workers.
Produce Produce 51% of the nation’s 51% of the nation’s private GDP.private GDP.
Account for 47% of business Account for 47% of business sales.sales.
Create Create 13 times more patents 13 times more patents per employees than large per employees than large companies.companies. Zipper, light bulb, FM radio, laser, Zipper, light bulb, FM radio, laser,
air conditioning, escalator, air conditioning, escalator, personal computer, automatic personal computer, automatic transmission, transmission, and many more!and many more!
U.S. Small Businesses ...(continued)
FIGURE 1.5 Small Business by Industry
Source: U.S. Small Business Administration, 2007.
Malaysia SME
Services 37% of
GDP (2010)
FIGURE 1.3 U.S. Retail E-Commerce Revenues Source: Based on Forrester Research, 2008.
FIGURE 1.4 Why Women Start Businesses
Source: U.S. Small Business Administration, 2007.
Role of SMEs (Bolton Report Role of SMEs (Bolton Report UK 1971)UK 1971)1.1. Productive outlet for enterprising, independent Productive outlet for enterprising, independent
individuals;individuals;2.2. Most efficient form in some sectors;Most efficient form in some sectors;3.3. Specialist suppliers or sub-contractors to large Specialist suppliers or sub-contractors to large
firms;firms;4.4. Provide products and services which are too Provide products and services which are too
small for larger firms to consider;small for larger firms to consider;5.5. Competition for monopolistic tendencies of Competition for monopolistic tendencies of
larger companies;larger companies;6.6. Innovators of new products, services and Innovators of new products, services and
processes;processes;7.7. Breeding ground for new industries;Breeding ground for new industries;8.8. Seedbed for tomorrow’s larger companies – Seedbed for tomorrow’s larger companies –
entry for entrepreneurs who will become entry for entrepreneurs who will become industry industry chiefs of the future.chiefs of the future.
Role of SMEs (Bolton Report Role of SMEs (Bolton Report UK 1971)UK 1971)
Conclusion : Conclusion : Small business is an Small business is an extremely efficient form and extremely efficient form and owner managers have owner managers have commitment.commitment.
Recommended : Recommended : Government Government must support small business, must support small business, not harm it, and appoint a not harm it, and appoint a Minister for Small FirmsMinister for Small Firms
Comparison with large Comparison with large firmsfirms
3 key differences between small 3 key differences between small and large firms:-and large firms:-
1.1. Uncertainty Uncertainty – small customer – small customer base and limited resources;base and limited resources;
2.2. Innovation Innovation – new products and – new products and services key to start-up services key to start-up success;success;
3.3. EvolutionEvolution – constant – constant structural change and market structural change and market change as firms grow.change as firms grow.
VAT Registered UK businesses (1980-2005)
UK SMEs (2007)UK SMEs (2007) 4.3 million firms in the UK., an increase 4.3 million firms in the UK., an increase
on the 3.7 million that was almost on the 3.7 million that was almost constant for 10 years.constant for 10 years.
1.7 million businesses in the UK are VAT 1.7 million businesses in the UK are VAT registered – i.e. sales turnover more than registered – i.e. sales turnover more than £64,000 p.a.£64,000 p.a.
2.6 million businesses 2.6 million businesses have sales have sales turnover less than £64,000 p.a. = turnover less than £64,000 p.a. = very very small, mainly sole traders.small, mainly sole traders.
Start-ups are almost balanced by exits – Start-ups are almost balanced by exits – small net gain last year. Approx 10%small net gain last year. Approx 10%
““ churn” – 400,000 start-ups and 400,000 churn” – 400,000 start-ups and 400,000 exits each year. This is a dynamic and exits each year. This is a dynamic and turbulent sector of turbulent sector of economy.economy.
ISSUES & ISSUES & CHALLENGES CHALLENGES
FACED FACED BY SMESBY SMES
Survival Rate of Start-ups Survival Rate of Start-ups (UK)(UK)
Forbes Misery IndexForbes Misery Index The Misery Score The Misery Score is the sum of is the sum of
corporate income, personal income corporate income, personal income and wealth and wealth taxestaxes plus employer plus employer social security, employee social social security, employee social security and VAT/sales security and VAT/sales taxestaxes at the at the highest marginal rate in each highest marginal rate in each locale. locale.
Best proxy for evaluating whether Best proxy for evaluating whether policy policy attracts or repels capital and attracts or repels capital and talenttalent . .
For some countries with high local For some countries with high local or provincial taxes, a specific or provincial taxes, a specific location is listed.location is listed.
Sources of Financing for the Typical Start-up Business
Financing CapitalFinancing Capital Capital is key for entrepreneurs. Capital is key for entrepreneurs. In the face of a capital crunch, In the face of a capital crunch,
business’s need for capital has business’s need for capital has never been greater. never been greater.
Sources of capital may include: Sources of capital may include: Family and FriendsFamily and Friends Angel InvestorsAngel Investors Initial Public OfferingInitial Public Offering Traditional Bank LoanTraditional Bank Loan Asset-based BorrowingAsset-based Borrowing Government loan schemes Government loan schemes
U.S. Small Business U.S. Small Business Financing Strategies Financing Strategies
FIGURE 13.8 Where Do Small Businesses Get Their Financing?Source: Based on 2008 Survey of Small and Mid-Sized Businesses, National Small Business Association, Washington, DC, 2009.
13 - 38
Sources of Debt CapitalSources of Debt Capital Commercial banksCommercial banks
Lenders of first resort for small Lenders of first resort for small businessesbusinesses
Average micro-business loan = Average micro-business loan = US$7,400US$7,400
Average small business loan = Average small business loan = US$181,000US$181,000
Study: Study: 12% of U.S. entrepreneurs 12% of U.S. entrepreneurs receive bank loans to start their receive bank loans to start their businesses. businesses.
Sources of Debt Capital Sources of Debt Capital From Commercial From Commercial BanksBanks Short-term loans Short-term loans
Home Equity LoansHome Equity Loans Commercial LoansCommercial Loans Lines of CreditLines of Credit Floor planningFloor planning
Immediate and Long-Term Immediate and Long-Term LoansLoans Installment LoansInstallment Loans Term LoansTerm Loans
Asset-Based LendersAsset-Based Lenders
Businesses can borrow money by Businesses can borrow money by pledging as collateral otherwise idle pledging as collateral otherwise idle assets – accounts receivable, assets – accounts receivable, inventory, and othersinventory, and others
Advance rateAdvance rate – the percentage of an – the percentage of an asset’s value that a lender will lend. asset’s value that a lender will lend.
Small Business Lending Small Business Lending Companies (SBLCs) Companies (SBLCs)
(continued)
U.S. Federally Sponsored U.S. Federally Sponsored ProgrammesProgrammes
Economic Development Administration Economic Development Administration (EDA)(EDA)
Department of Housing and Urban Department of Housing and Urban Development (HUD)Development (HUD)
U.S. Department of Agriculture’s U.S. Department of Agriculture’s Rural Business (USDA) - Cooperative Rural Business (USDA) - Cooperative ServiceService
Small Business Innovation Research Small Business Innovation Research (SBIR) (SBIR)
Small Business Technology Transfer Small Business Technology Transfer programs (STTR)programs (STTR)
Small Business Administration (SBA) Small Business Administration (SBA)
Example : U.S. SBA Loan Example : U.S. SBA Loan ProgrammesProgrammes
Average 7(a) loan = $183,000 Average 7(a) loan = $183,000
Section 504 Certified Development Company Section 504 Certified Development Company ProgrammeProgramme
Microloan ProgrammeMicroloan Programme Average microloan = $13,000Average microloan = $13,000
U.S. SBA Loan U.S. SBA Loan ProgrammesProgrammes
The Capline ProgrammeThe Capline Programme Loans involving Loans involving
international tradeinternational trade Export Working CapitalExport Working Capital International Trade International Trade
ProgrammeProgramme
Disaster LoansDisaster Loans
(continued)
U.S. State and Local U.S. State and Local Loan ProgrammesLoan Programmes
Capital Access Programmes (CAPs)Capital Access Programmes (CAPs) – –Designed to encourage lenders to Designed to encourage lenders to make loans to businesses that do not make loans to businesses that do not qualify for traditional financing qualify for traditional financing
Revolving Loan Fund (RLFs)Revolving Loan Fund (RLFs) – – Combine private and public funds to Combine private and public funds to make small business loans make small business loans
Six Common Reasons Six Common Reasons Bankers Reject Small Bankers Reject Small Business LoansBusiness Loans1.1. ““ Our bank doesn’t make small Our bank doesn’t make small
business loans.” business loans.” Cure: Before applying for a Cure: Before applying for a
loan, loan, research banks to find research banks to find out which ones out which ones seek the type seek the type of loan you need. of loan you need.
2.2. ““ I don’t know enough about you I don’t know enough about you or your business.”or your business.”
Cure: Develop a detailed Cure: Develop a detailed business plan business plan to present to to present to the banker. the banker.
3.3. “You haven’t told me why you “You haven’t told me why you need the money.” need the money.”
Cure: Your business plan Cure: Your business plan should explain how much should explain how much money you need and how you money you need and how you plan to use it. plan to use it.
4.4. “Your numbers don’t support “Your numbers don’t support your loan request.”your loan request.”
Cure: Include a cash flow Cure: Include a cash flow forecast in your business plan. forecast in your business plan.
(continued)(continued)
Six Common Reasons Six Common Reasons Bankers Reject Small Bankers Reject Small
Business LoansBusiness Loans
5.5. “You don’t have enough “You don’t have enough collateral.” collateral.”
Cure: Be prepared to pledge Cure: Be prepared to pledge your your company’s assets – and company’s assets – and perhaps your perhaps your personal personal assets – as collateral for the assets – as collateral for the loan. loan.
6.6. “Your business does not support “Your business does not support the loan on its own.”the loan on its own.”
Cure: Be prepared to provide a Cure: Be prepared to provide a personal guarantee on the loan. personal guarantee on the loan.
(continued)(continued)
Six Common Reasons Six Common Reasons Bankers Reject Small Bankers Reject Small Business LoansBusiness Loans
Further ReadingFurther Reading Stokes, D. & Wilson, N. (2010), ‘Small Business Management & Stokes, D. & Wilson, N. (2010), ‘Small Business Management &
Entrepreneurship’, South Western Cengage Learning, 6th Entrepreneurship’, South Western Cengage Learning, 6th edition edition
Barringer, Bruce R. & Ireland, R. Duane (2011) Barringer, Bruce R. & Ireland, R. Duane (2011) Entrepreneurship-Entrepreneurship-Successfully launching new ventures Successfully launching new ventures 44thth edition, Pearson. edition, Pearson.
Global Entrepreneurship Monitor (GEM) Global Entrepreneurship Monitor (GEM) GEM Global 2012 GEM Global 2012 report, report, http://www.gemconsortium.org/ http://www.gemconsortium.org/
Department for Business Innovation and Skills (UK Department for Business Innovation and Skills (UK government), government), http://www.bis.gov.uk/ http://www.bis.gov.uk/
World Bank “Doing Business” report 2013, World Bank “Doing Business” report 2013, http://www.doingbusiness.org/ http://www.doingbusiness.org/
World Economic Forum GCR “Global Competitiveness Report” World Economic Forum GCR “Global Competitiveness Report” 2012-2012-2013,http://www3.weforum.org/docs/WEF_GlobalCompetitivene2013,http://www3.weforum.org/docs/WEF_GlobalCompetitivenessReport_2012-13.pdf ssReport_2012-13.pdf
