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Governments ‘need to connect the dots’ between encouraging start-ups and delivering economic growth

Date

29 Apr 2014

Sections

Euro & Finance
Policy needs to focus on enterprise growth, says report commissioned by ACCA

The growth of Small and Medium Sized Enterprises (SMEs) needs long term and evolving support from government and the private sector, says a new global report commissioned by ACCA (the Association of Chartered and Certified Accountants) and prepared by Delta Economics.

 

Representing around two thirds of the employment and nearly 60% of the value added in the EU, SMEs are key contributors to sustainable growth. As part of its efforts to address long-term financing, the European Commission has clearly identified support for SMEs, particularly financing of SMEs, as a key area of focus.

 

ACCA report the Growth Challenge examines enterprise and SME development by interviewing respondents and reviewing the business support literature in nine countries - China, India, Nigeria, South Africa, Singapore, US, UK, Germany, France.

 

The researchers found that business birth strategies – such as skills training or small-scale start-up finance - are crucial to generating greater labour market participation, but must be effectively linked to other strands of enterprise policy to support business growth and development. – otherwise start-ups are likely to fail before they can make a genuine economic contribution. This is particularly important in developing countries, where large numbers of self-employed individuals lack the institutional support to turn their initiative into sustainable business.

 

Manos Schizas, senior economic analyst at ACCA, says: “The researchers examined the support available to entrepreneurs by drawing on a new theoretical framework. Their Virtuous Circle framework rejects the idea of an ‘escalator’ in which support for one stage of growth somehow automatically prepares businesses for the next. Businesses’ support needs are recurring, and it’s easy for entrepreneurs to either fall through the cracks or redirect resources away from business growth.”

 

The findings show that Germany is heavily reliant on its so-called Mittelstand’ businesses that are rooted in their region but globally ambitious and long-term in their thinking. They are reflective of the ‘German model’: highly export-oriented, highly innovative and effectively financed. The system of regional banks in Germany appears to have been particularly successful in generating secure SME funding frameworks, not least because it is heavily, and institutionally, supported by regional governments, the national government and the German Bank for Reconstruction and Development, as well as by private sector interests.

 

France’s high business birth rate is impressive, however, the research indicated that a number of French firms find it hard to survive after the start-up phase. The country has strong mid-market enterprises, efficient regional clusters and effective support structures for the larger firms. Government schemes to promote start-ups have been successful but the number of business failures in France is still high.

 

The report offers a series of recommendations:

 

·         Enterprise policy needs to be live, iterative and evolving – Enterprise policy needs to recognise that enterprise needs evolve. For example, financial support is required throughout an enterprise’s development, but the nature of financial support changes. Policies need to be ‘live’ to this evolving nature of enterprise development. The most successful policies are ones where more traditional start-up support is developed with a longer-term view to supporting their growth and development. This has been less successfully applied in developing countries which lack the necessary institutional frameworks to sustain enterprise growth.

·         Support which goes beyond the enterprise – To create enterprise growth which is truly sustainable, enterprise policy should aim to build a self-sustaining system of support. As enterprises develop, public support should shift towards the use of tools which encourage re-investment, financial or otherwise, from the enterprises which initially received direct support, feeding resources back into the cycle. Such policies require support structures such as appropriate regulatory frameworks and tax incentives.

·         The balance between public and private support needs to evolve alongside enterprise development – Public support is a crucial component to driving enterprise development in all countries, particularly at business birth and early stage growth. However, as enterprises become sustainable, the balance between public and private support needs to reflect the respective public and private returns from enterprise growth.

·         Use of clusters – The use of regional clusters - a microcosm of the eco-system of support required throughout the Virtuous Enterprise Cycle – has proven to be a successfully model to foster enterprise growth, building on existing strengths of the region.

·         Recognising the holistic nature of enterprise policies – Enterprise policies which focus on ‘birth strategies’ have been commonly used across all countries as part of labour market policy, supporting employment through start-ups and sole proprietorships. They need to be viewed holistically so that the connection between labour market growth and enterprise growth is not lost, and quotas and targets don’t get in the way of developing truly sustainable enterprises.

 

Manos Schizas concludes: “Roughly half of the world’s private sector output is produced by SMEs, but most businesses contribute very little to this. The strongest contributors benefit from support infrastructure that can provide multiple and different kinds of support to them as they grow. Financing and skills emerged from our research as recurring themes in business support that test the versatility of supporting institutions.”

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ACCA has produced country-specific summary findings for each of the nine markets, available in a separate Appendix.

ACCA and Delta Economics have also worked together to deliver ACCA’s 2012 report, High Growth SMEs: Understanding the Leaders of the Recovery.

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For more information, please contact:

Helen Thompsonhelen.thompson@accaglobal.com

Direct: +44 (0)20 7059 5759
Mobile: +44 (0)7725 498 654
Twitter @ACCANews

Steve Rudaini steve.rudaini@accaglobal.com

Direct: +44 (0)20 7059 5622

Mobile: +44 (0)7801133985
Twitter @ACCANews

 

Notes to Editors
 

1.    ACCA (the Association of Chartered Certified Accountants) is the global body for professional accountants. We aim to offer business-relevant, first-choice qualifications to people of application, ability and ambition around the world who seek a rewarding career in accountancy, finance and management.

2.    We support our 162,000 members and 428,000 students in 173 countries, helping them to develop successful careers in accounting and business, with the skills required by employers. We work through a network of 91 offices and centres and more than 8,500 Approved Employers worldwide, who provide high standards of employee learning and development. Through our public interest remit, we promote appropriate regulation of accounting and conduct relevant research to ensure accountancy continues to grow in reputation and influence.

3.    Founded in 1904, ACCA has consistently held unique core values: opportunity, diversity, innovation, integrity and accountability. We believe that accountants bring value to economies in all stages of development and seek to develop capacity in the profession and encourage the adoption of global standards. Our values are aligned to the needs of employers in all sectors and we ensure that through our qualifications, we prepare accountants for business. We seek to open up the profession to people of all backgrounds and remove artificial barriers, innovating our qualifications and delivery to meet the diverse needs of trainee professionals and their employers.

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