The Effectiveness of Scottish Enterprise

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This essay aims to examine how effective Scottish Enterprise has been in accomplishing its role as an economic development agency for Scotland. Scottish Enterprise describes itself as “the main economic development agency for Scotland1”. It was established in 1991 to replace the Scottish Development Agency. The new agency was more regionalised through a network of Local Enterprise Companies, which encouraged the involvement of local entrepreneurs2. It is funded by the Scottish Executive.

Scottish Enterprise’s mission is “to help the people and businesses of Scotland succeed […and to] aim to build a world-class economy.3” The Scottish Executive’s objectives for Scottish Enterprise are set out in A Smart, Successful Scotland, along with a measurement framework. It identifies three themes, namely Growing Businesses, Global Connections and Skills and Learning and sets the priorities and aims within each of these4. Scottish Enterprise endeavours an integrated approach to its diverse activities. It co-operates with a range of partners, including companies, universities and local authorities.

With regards to the first theme of Growing Businesses, its main concerns are the encouragement of entrepreneurship and innovation, the commercialization of research and innovation, an increase in e-business and the global success in key sectors. In its operating plan it identifies the first two of these areas as those in which Scotland is underperforming and where it will therefore concentrate its efforts. The agency acknowledges that although there has been a shift in attitudes towards entrepreneurial activities, this has not yet been translated into increasing the number of new business start-ups.

A formal business birth rate strategy has first been implemented in 1993 and since been reviewed in 20015. The Fraser of Allander Report 2001 found that the effectiveness of the strategy pursued to that point was not as effective as it could have been, targets set where unrealistic and that a single indicator was insufficient in assessing a complex strategy6. Its criticisms of the strategy employed included a pre-occupation with the number of business start-ups in itself, inadequate integration between major strategic areas, lack of informal support, insufficient involvement of the private sector and under-representation of women and young people.

It concedes that enterprise has successfully been introduced into the education system. In response to the Fraser of Allander Report, Scottish Enterprise launched the New Approach to Entrepreneurship in February 2002. This now includes a focus on the quality of the new start-ups in terms of innovation and growth potential, improving and increasing support services and development of enterprise amongst young people and under-represented groups7. The first includes a new programme that has been developed jointly with the private sector. Initiatives were developed to improve access to finance.

The second part is to be achieved by increasing the number of business start-ups to receive assistance and introducing a survival rate target. Targets were also introduced for the start-ups by women and young people and enterprise education was to be improved further. The number of business starts had fallen from 24,771 in 1997 to 16,967 in 2001. Since the review of Scottish Enterprise’s Strategy, these figures have recovered to exceed the 20,000 mark, however not to its previous level8. In its own assessment, Scottish Enterprise uses the number of new businesses that have registered for VAT.

In either case, business start-ups in Scotland are below the UK average and are outperformed by most regions9. Whilst the statistics until 2000 also include the number of business closures, these are not provided for the following years. For the period of 1995 to 2000, both insolvency and voluntary closure have steadily declined10. For the Growth and Survival Rates over three years, which the Scottish Executive set as new performance measures in 2001, it is yet too early to draw concrete conclusions.

However, although the number of both growth businesses and the survival rate of new businesses have improved between the two periods of 1998 to 2001 and 1999 to 2002, it is well below the Scottish Enterprise’s target11. While there is no exact definition of what constitutes high growth, for the period of 2000 to 2003, 85 new businesses started with less than 10 staff in 2000 and expanded to over 15 by 200312.

The Measuring Scotland’s Progress towards a Smart Successful Scotland 2004 review also found that while the focus of funding was towards technology intensive businesses, growth was highest in construction, retail and wholesale and services. As for innovation within existing businesses, Scotland rated low compared to other European countries, but at 103% and 113% of the UK average for product innovation and process innovation respectively. Despite improvements made, the Regional Survey of UK Economic Trends, conducted by CBI, still found that inadequate business support from the government is the key factor inhibiting business growth in Scotland13 , followed by problems with the access to finance.

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