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Twenty-three

Dr Paul Hopkins Opinion

More start-ups needed – everywhere…

Dr Paul Hopkins  Opinion

More start-ups needed – everywhere

The importance of start-ups and business creation to economic growth is well established. Without new firms, there is less competition and fewer new disruptive companies driving job creation at the local, regional and national level.1

Successful start-ups also often lead to the creation of more mid-sized businesses (MSBs), and this is important because MSBs disproportionately contribute to growth – they are more innovative, more productive and more likely to export.

Recent analysis by the Hunter Centre for Entrepreneurship at the University of Strathclyde reaffirmed the strong performance of Scotland’s start-ups.2 But what is less understood is how business creation is spread across Scotland and relates to existing business populations.

This is what my research for Scottish Enterprise set out to explore, and the conclusions not only highlight the importance of start-ups to economic prosperity, but also have important implications for policy makers in their bid to achieve sustainable economic growth with opportunities for everyone – not only in the cities but across the whole country.3

After strong growth from 2010 to 2013, the business birth rate in Scotland has plateaued, allowing the death rate to catch up. As a result, from a net birth rate (births minus deaths) of 6,690 new businesses in 2013, the net growth in 2017 was 1,225. And this trend is likely to lead to a weakening of the pipeline of early-stage growth potential companies in years to come.

The overall sluggish growth in business creation should be a concern, but perhaps the biggest worry is that some Scottish regions are falling behind. If the pattern observed since 2010 continues, the disparities in current and future economic performance across regions is likely to increase, not only weakening overall growth but also draining talent away to the cities, thus increasing the imbalance.

Understanding these trends in new business creation is only one part of the story, however. Further work is underway which will build full growth pictures for every region – from business creation, through achieving and
sustaining growth to become high-growth companies, to ultimately becoming MSBs.4 This is important to understand, because in addition to new business creation rates, emerging evidence suggests that after strong start-up performance, achieving and sustaining growth amongst companies in Scotland with a turnover of about £4 million onwards (to about £10 million) starts to slow, creating a growth bottleneck.5 Building a full regional view will allow the development of locally tailored responses to tackle challenges like these where they occur, whilst maximising opportunities – all reflecting local circumstances.

A slowdown in business creation will limit the opportunities to increase the numbers of Scottish high-growth firms and MSBs, which are integral to national growth. In fact, early analysis of the latest MSB data by region suggests that many of the trends observed in start-ups are well entrenched, with some regions clearly lagging at both the mid-sized level as well as in new business creation6, whilst others (such as Edinburgh, West Lothian, Fife and Aberdeen) accelerate their growth. In addition, at the mid-sized level, the performance of foreign-owned MSBs in Scotland is outpacing their Scottish counterparts.7

This represents a significant challenge for policy makers who, over recent years at the UK and Scotland level, have been driven by the needs and desires of the cities. Whilst instruments such as City Deals have recognised the importance of tailoring support to individual locations, this has contributed to an imbalanced growth eavily dependent on cities at the expense of rural areas and towns, as these (as well as other) data show.

There is a lot of talk about inclusive growth – and with good reason. However, the data suggests that a more substantial shift in focus is needed to deliver this, turning prevailing policy thinking away from a narrow focus and onto a wider economic development standpoint. There will be many ways to achieve this, but one of the  most important is to equip individuals with the skills and confidence to create and grow new businesses, wherever in Scotland they are. To increase the number of high-growth companies and MSBs, we need to  prioritise business creation and rethink our priorities to create more opportunities beyond cities and achieve the Government’s objective of sustainable and more inclusive economic growth for all.

1 Nesta (2013) The Vital 6%.
2 An update of the Global Entrepreneurship Development Index, Strathclyde University (2017)
3 Scotland’s Economic Strategy (2015)
4 mid-sized businesses are companies which disproportionately contribute to economic growth, and are more productive, inclusive and innovative.
5 Enterprise and Skills Board Strategic Plan, Scottish Government (2018), p.30
6 http://www.evaluationsonline.org.uk/evaluations/Search.do?ui=basic&action=showPromoted&id=684
7 http://www.evaluationsonline.org.uk/evaluations/Search.do?ui=basic&action=showPromoted&id=683

 

Key conclusions:

1 While Scotland’s net creation of new businesses (business births minus business deaths) has grown since 2010, the rate of growth declined from 2015 across 26 of 32 local authorities compared to 2012–14.

2 Scotland is under-performing compared to other UK regions, and is ranked in the third quartile amongst UK regions for net business creation as a percentage of its business base. To move into the top quartile would have required the creation of an additional 8,059 businesses from 2010.

3 Creation of new businesses across Scotland is highly uneven. The highest growth relative to the business population is in and around the core cities – in Edinburgh, West Lothian, Aberdeen and around (but not within) Glasgow. Growth is weakest in rural and remote areas. So not only are urban areas producing more new businesses, they are also producing more relative to their existing business population – pulling away from the south of Scotland, Ayrshire, the Highlands and parts of the Tay Cities. In this regard, Scotland’s economy is not becoming more inclusive – quite the opposite.

4 As these areas fall behind, there is a growing reliance on the cities to drive the national economy, and the evidence shows that the performance across cities is mixed. Edinburgh is the epicentre of new business creation, and despite seeing a 14% decline in new businesses from 2015–17 compared to 2012–14 (largely caused by a decline in oil & gas), Aberdeen is also a leader in business creation. However, Glasgow City underperforms relative to its business base in new firm creation, ranking in the third quartile, along with Dundee, while Highland (incorporating Inverness) is in the bottom quartile. A more balanced economy would have new business creation distributed more evenly throughout the whole country, so that any decline – as seen in Aberdeen or the ‘underperformance’ of Glasgow – would have less impact at the national level.

 

 

 

 

 

 

 

 

"Dr Paul Hopkins Opinion". Science Scotland (Issue Twenty-three)
Printed from http://www.sciencescotland.org/feature.php?id=361 on 27/05/19 08:17:25 AM

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