The role small enterprises play in the economy of the country Sample
Introduction
In a country there are different types of businesses operating. They all help in contributing in nation growth and development. There are different types of business that offers variety of products and services (Blackburn, 2016).
In this report it will be described about role of small business in UK economy. Besides that, it will be discussed about UK efforts to develop environment for entrepreneurship and issues related to environment provided for SME. In addition, barriers for SME in economic development is mentioned as well.
Background of country
UK is also known as Great Britain and it north western sovereign nation in Europe. The nation shares its border with Ireland. It is found that total area of country is 242, 500 square kilometres. Moreover, its total population in 2020 is estimated to be 68 million. UK follows parliamentary democracy. London is capital and largest city of UK. Basically, there are 4 parts of UK that is Scotland, Ireland, Wales and England.
UK efforts to develop environment for entrepreneurship
UK is a developed nation and there are many large as well as medium organisations operating in it. The country environment is highly stable as it follows parliamentary government that changes in every 5 years. Furthermore, every nation tries to make efforts to create environment where all types of business can run and operate (Ward and Rhodes, 2014). It is necessary to ensure that business runs freely and there is economic growth of nation.
Other than this, government has set up British business bank that provide easy loans to people. It keeps in contact with business and provide them guidance and assistance in finance options. Apart from it, Enterprising Britain awards is started by government. It gives award to those entrepreneurs who are shaping business environment. This has inspired various people to initiate new and unique idea and start business.
Figure 1 Entrepreneur awards
(Source: Gov. UK, 2020)
It is stated that with these efforts UK government is trying to support entrepreneur. They are creating environment where people get full support by associations, banks, stakeholder to set up start up. The issues are identified and solved by making it easier for entrepreneur. Commission and helpline desk has made it easy to get advice.
Knowledge creation
Issues related to environment provided for SME
A business has to face several issues in order to survive within market for long term. After that they become successful in market. The issues can be either internal or external. SME are highly prone to issues as they operate in critical environment. In UK the SME face various types of issues that is mentioned as below:
Lack of finance- Due to that they are not able to buy resources required. Hence, this led to difficult situation where SME does not survive in market. They are not capable to compete with others and it results in failure of business. The banks do not give loans to SME as there is high risk in getting default. For example- Metalysis was SME which failed due to lack of finance in 2019. They suffered huge operating loss of -£7.08 million. Also, Loot got failed as they ran out of cash (Stirling, 2017).
Lack of infrastructure information – The financial industry deals with information intrinsically. However, there is an asymmetric information problem between suppliers and demanders of funds in general. Information infrastructure is necessary to remedy this problem. However, most SME’s have no connection with capital markets. Financial institutions can closely and continuously observe borrowers, but it is costly to do so for borrowers of small loans.
Low R&D in SME- It is also an issue where in SME R&D is very low. The R&D of a nation is generally focused on a limited number of large firms (Froud and Williams, 2018). In some country, SME’s account for a significant share of the total business R&D effort. Also, lack of funds put restriction on business to limit R&D. For instance- Faraday Grid failed as directors were not able to secure funds to progress in R&D. Moreover, company was not having sufficient investment to pay their debts and liabilities.
Ineffective management of cash flow- So, it leads to financial crisis. Here, example of House network can be taken. The SME failed because of poor management of cash flow. The shareholders did not secured funding due to which SME failed.
These are certain issues faced by SME in environment. There is need to take relevant measures to solve them. The major issue is funding due to which many SME are not capable to survive in market. Besides, any change in external factors transform environment.
National barriers to enterprise creation
The barriers restrict or prevent new businesses to be set up and operate. The barriers are mentioned as below :
High level of competition- This is common national barrier that is being faced in enterprise creation. In UK there is already a stiff competition in market. Due to that there are many small firms who are not able to survive in market for long term.
Economic crisis- UK is not able to cope with crisis and the market condition has worsened. Thus, entrepreneurs are not able to set up their business. Already there is financial problems being faced by business owners in UK. Therefore, new small firms are not created or developed in UK.
Consumer behaviour- There is also decrease in demand of products and services. The consumes are spending on essential items only. Thus, new firms are not able to be created in UK. There is no development of sustainable product by enterprise.
Few personnel- Due to Brexit they have returned back to their nation. This has resulted in insufficient labour in country. Therefore, due to its new enterprises are not developed. Even if skilled staff is there they are demanding high pay to work.
Figure 2 SME on brexit
(Source: Where SME stands on brexit, 2019)
It is analysed that small business is backbone of any nation. This is because it provides goods that fulfil people needs. They also help in driving economic growth (Matlay, 2017). Besides that, business employ skilled and non-skilled workers. EU has defined small business which is having work force of less than 250 and turnover is $10 million.
In UK small business play vital role in its economy. It has been found that there are around 5.5 million small business till 2021. There are over 16.3 million people working in UK that contribute 60% of all jobs. There are large number of jobs that is 2 million generated in last 5 years. Around 70% of private sector job is generated by small business.
Knowledge exploitation
It has been critiqued that small business provide economy with new product and services. The make market more dynamic which enable in expansion of business. Along with it, entrepreneur identify new markets in UK and expand business in that region (Poutziouris, 2013).
Figure 3 Number of firms in UK
(Source: How small business help UK economy, 2020)
In the report of Goldman Sachs, it is found that 10, 000 small business in UK is a key resource for increasing productivity. In a study it is stated that 55% of small business are not able to sustain for more than 5 years. But in UK there is no such situation with business. There are several trends which has occurred in UK. The first is that between 2020 and 2021 small business decreased by 6.5% that is 390,000 but from 2000 to 2021 there was increase by 2.1 million.
Moreover, decrease of 6.5% is first time in decade. As per reports it is said that 16% of small business operate in construction sector, 15% in mining and utility sector. In London there are most number of private sector business that is 1 million. So, it accounts for 34% of UK overall business (Radwan and Daoud, 2021). However, from 2020 to 2021 the number of private sector businesses decreased by 336,000 in England, compared to 28,000 in Scotland, 25,000 in Northern Ireland and 1,000 in Wales.
Figure 4 Number of SME in UK
(Source: Statista, 2020)
On contrary it is evaluated that small businesses are playing vital role in economic growth of UK. They are back bone of nation and have contributed in highly in GDP of UK. It has also led to creating large number of jobs. Besides, new businesses have emerged in UK market. So, there is increase in 10-12% in GDP of UK.
Conclusion
Hereby, from report it can be concluded that small business play vital role in UK economy. They provide different types of services and products to people to fulfil their needs in UK. The government has made different efforts like R&D tax relief is given, R&D expenditure credit is given to work on R&D project, Global entrepreneur programme, British business bank to offer loan, office for small business commissioner is formed.
There was increase of 6.5% in them as compared to 2020. Moreover, 16% of small business operate in construction sector, 15% in mining and utility sector and there are 1 million private sector business in London.
Bibliography
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