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09 March 2004
The Herald
Paving the way for young hearts

What do television sets, telephones, steam engines, pneumatic tyres and basically anything to do with medicine (from hypodermic needles and anaesthetics to penicillin) have in common?  All of them were invented in Scotland.

For a country with just over 5 million inhabitants, Scotland has a disproportionate influence on the world we live in.  Heavy industries such as shipbuilding, coal mining and steam shaped the 19th and early 20th centuries.  Emerging industries like biotechnology, chemicals and information technology will mould the future.

The crucial shift has not just been in the scale of the industries, it is the size of the companies.  Whereas once Scotland's landscape was littered with Blake's dark satanic mills, industries behemoths pumping out blackness, it is now small and nimble organisations that carry the weight of Scotland's economy on their backs.

Small and medium-sized enterprises account for more than 90% of Scotland's employment and a larger proportion of firms than anywhere else in the country.  Here they make up 35% of the total compared to 31% across the rest of the UK.  In fact the only areas comparable are the better known SME powerhouses of Southern Germany and Northern Italy.  There can be no disputing the fact that SMEs represent the country's future well being.  

The argument becomes more persuasive when you consider that arguably the largest challenge facing the Scottish economy is the collapse of some of the largest industries it has placed too much reliance on in the past.  The sound you can hear are low cost and low value jobs being sucked to cheaper centres like India and China.

From supplying 40% of Europe's PC monitors only a few years ago, Scotland now barely produces any.  And most now admit that the focus in the early 1990s on call centres was money badly spent.  But this is precisely where SMEs can be knights on horseback.  Recent research by management consultancy McKinsey suggests that for every 1 lost in wages in an outsourcing deal, the economy gains as much as 1.12 from reinvesting cost savings, additional exports, and freeing up employees at home to take on better-paid jobs and significantly to start up their own companies.

Forget any stories you might read about the death of the SME either - one of the great myths of recent Scottish business.  According to Scottish Enterprise, in 2002-3, for which we have the most recent figures, there was a 17% increase in the number of start ups.  Figures released last year by the British Venture Capital Association stand in stark contrast to the notion that venture capital funding for entrepreneurs collapsed faster than you could say dot.com.

The venture capital industry is worth around 3.5bn of investments in a year throughout the UK.  That would represent three times the size of the industry in the mid-1990s and a six-fold increase over 10 years.  Of that Scotland remains one of the most buoyant regions for private equity in the UK.

This is not to say that there is undiluted good news.  There are, needless to say, problems which need to be addressed too.  Although the number of liquidations in Scotland during the final quarter of 2003 fell by 36% on the same period in 2002, the business failure rate in Scotland remains uncomfortably high.  Jack Perry, the thrusting new chief executive of Scottish Enterprise, believes that mentoring is the answer.  "A company might not listen to me or one of our business advisers.  But they will listen to Fred Goodwin (chief executive of the Royal Bank of Scotland) or Tom Hunter," he says.

It is a scheme that is likely to bear fruit.  The effort put into helping start-ups put the rest of the country to shame.  Scottish Enterprise was one of the first regional development agencies to set a strong policy towards developing start-ups.  Its Business Birth Rate Strategy was set up as long ago as 1993 and was reviewed in 2002.  Significant efforts have been made to increase the numbers of businesses started by women and young people (it has targets of 41% of start-ups from women and 10% by people under 25 years of age).

It has been especially successful encouraging school children to consider setting up their own business.  Since 1977 Young Enterprise Scotland has been giving young people the opportunity to understand how business works.  Groups of students in schools - nearly 7000 a year learn about the world of business and commerce through a range of practical programmes including the setting up and running of their own companies.

The other serious impediment to a greater entrepreneurial culture is that of general access to funding.  According to a recent report carried out by the University of Strathclyde, it is this issue that is still discouraging people from starting out on their own.  The findings, on what it calls Total Entrepreneurial Activity rates measure business creation in 31 nations.

Scotland is at the base of a group of nations forming the middle of three bands.  Blame must be laid at the feet of the banks.

To give some comparison, it can take 20 minutes to open a business bank account in Hong Kong, and you leave the premises with cheque book and cards.  In Scotland it can still take up to six weeks of frustrating phone calls.

Recently officials slammed the Royal bank of Scotland, Barclays, Lloyds TSB, and HSBC for making excess profits and claimed they operated a complex monopoly in the small and medium-sized enterprises sector.  The silver lining, from this is that over the next year the process should become much more transparent and simple.

As for the future, Scotland is finally beginning to embrace its entrepreneurial culture.  John Anderson, chief executive of the Entrepreneurial Exchange, Scotland's leading organisation for ambitious growth orientated entrepreneurs and with more than 400 members, explains:

"Ten years ago, the man and woman in the street probably wouldn't have known what an entrepreneurs was.  Many more Scots are now seeking to become entrepreneurs by choice rather than by necessity."

 

ADRIAN MURDOCH 

 

 



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