Entrepreneurship on the Island of Ireland 2004

Published: 2004

Executive Summary

Introduction

The aim of Entrepreneurship on the Island of Ireland in 2004 is to develop insights into the entrepreneurial environment on the island of Ireland and to recommend means by which a dynamic entrepreneurial environment can be developed throughout the island. The Global
Entrepreneurship Monitor (GEM) Adult Population Surveys for Northern Ireland and Ireland have been merged to allow the island analysis to be undertaken. An important innovation this year is to use the range of variables in the GEM dataset (i.e. individual characteristics and attitudes) to construct a series of models of the determinants of early stage entrepreneurship on the island of Ireland. [1] In addition to survey analysis, views from GEM’s key informants and participants in a series of interactive workshops have been utilised, to provide evidence to underpin the recommendations. [2]

PART 1: AN ANALYSIS OF ENTREPRENEURSHIP ON THE ISLAND OF IRELAND

Section 1: Levels of Entrepreneurial Activity

On the island of Ireland, one in eleven of the adult population is the owner/manger of an
proportion of adults in Ireland are the owner/managers of established businesses (10.1%), than is the case in Northern Ireland (6.9%).

The proportion of owner/managers within the adult population on the island of Ireland (9.2%) is higher than it is in the United Kingdom (UK) as a whole (8.2%). It is also higher than the average across Europe (8.0%), and is not far off the level that prevails in the United States (US) (10.3%).

In 2004, the total early stage entrepreneurial activity rate (TEA — comprises of nascent [3 ] and
new firm entrepreneurs [4] ) for the island of Ireland was 7%. This consisted of 7.7% in Ireland and 5% in Northern Ireland. That means that throughout the island of Ireland about 245,000 individuals between the ages of 18 and 64 were actively involved in either planning a new business or had recently set up a new business in the previous 42 months.

The island of Ireland is to the fore in Europe in terms of early stage entrepreneurial activity: only Poland has a higher rate (8.8%). In Poland, however, more than a third (35%) of entrepreneurial activity is driven by necessity, compared to 14% on the island of Ireland.

The overall indications are that future entrepreneurial activity levels on the island of Ireland will be similar to those of the UK (9.5%), and will be on a par with the average across Europe (9.5%), but somewhat less than in the US (13.7%). Judging by these indications of future intention given by the adults on the island of Ireland, the rate of entrepreneurial activity on the island of Ireland may be expected to continue to be considerably less than the most entrepreneurial of other OECD countries.

Section 2: The Characteristics of the New Businesses

Compared to the US there is a marked difference in the spread of early stage entrepreneurial activity by sector. Most noticeable is the relative importance of ‘Consumer Sectors’ [5 ] in the US (52%) and in Europe (42%), compared to the island of Ireland (35%). ‘Transformative Sectors’ [6] are more important on the island of Ireland (31%) than they are in the US (19%) and Europe (27%).

In Ireland (13%) and Northern Ireland (15%) a proportion of all early stage entrepreneurs have significant growth expectations and expect to employ at least twenty people within five years of start up. In both parts of the island of Ireland, one in twenty (5%) new firm entrepreneurs already employ twenty or more.

In Ireland 29% of new firm entrepreneurs report that they already have 25% or more of their customers in export markets, compared to 17.5% of new firm entrepreneurs in Northern Ireland.

Moreover, 14% of all early stage entrepreneurs from Ireland expect that at least half of their sales will come from outside the country, compared to just 7% of entrepreneurs from Northern Ireland. This makes entrepreneurs from Northern Ireland less focused on growing their company through export sales [7] than is the typical entrepreneur across Europe (9%) or in the US (10%).

Section 3: Finance for Entrepreneurs

The entrepreneur’s need to raise finance for a new venture from sources other than his/her own funds is more pronounced in Ireland than it is in Northern Ireland. The contrast with the UK is even more pronounced. Moreover, the amount needed on average to start a new business in Ireland is higher than it is in either Northern Ireland or the UK.

GEM research estimates the level of informal investment activity among the adult population. Internationally, such investment is critical to the financing of start-ups, amounting, on average, to one-third of all finance used by new ventures. The entrepreneurs themselves typically provide the other two-thirds.

The level of informal investment activity remained broadly at its 2003 levels in Ireland and Northern Ireland in 2004.

Section 4: Understanding what is Driving Early Stage Entrepreneurial Activity

Descriptive analysis of the GEM data shows that there are significant variations in early stage entrepreneurial activity on the island of Ireland and also across a range of different subgroups within the adult population. To ascertain the relative importance of aspects of personal attributes (opportunity recognition, perception of skills, personal networks, and fear of failure), as well as different demographic and attribute features (gender, age, income category, education attainment levels, and employment status), a multivariate model of the determinants of early stage entrepreneurial activity was developed.

A number of important drivers of entrepreneurial activity have been identified. The main points can be summarised as follows:

• The island model indicates that, controlling for other demographic and attribute variables within the GEM dataset, there were other ‘environmental or framework factors’ mitigating against entrepreneurial activity in Northern Ireland. [8] Therefore, the observed difference in early stage entrepreneurial activity between Ireland and Northern Ireland cannot be ‘explained’ in terms of the demographics and personal attributes of the respondents.
• The large size of the public sector in Northern Ireland may be seen as having a ‘dampening’ effect on entrepreneurial aspirations through the provision of ‘safe occupations’ in terms of earnings and job security.
• The ‘framework’ factors in Northern Ireland are to a large extent ‘represented’ by the bundle of attitudinal variables. [9] This clearly sets out one aspect of the policy challenge for Northern Ireland — to raise the thresholds of these proxy variables for entrepreneurial culture.
• Gender operates differently in the Northern Ireland and Ireland models. Although females in Ireland are involved in early stage entrepreneurial activity at half the rate of males, females in Ireland, if all other things were equal, would be more likely than males to be involved in new venture creation. This is not the case in Northern Ireland, however, where the gender gap in favour of males is large, even when other controlling factors such as education, employment status, income and attitudes are included in the model.
• As in the island model there was a strongly positive and significant relationship in Northern Ireland between age and entrepreneurial activity — early stage entrepreneurial activity increases with age but at a decreasing rate, while controlling for other factors. This relationship is not as strong in the Ireland model. In addition, it emerged that young people aged between 18 and 24 years were significantly less likely than individuals aged between 35 and 44 years to be involved in new venture creation in Northern Ireland. This is an important conclusion for policy and provides clear evidence of the need to understand why this age group are even less likely than their counterparts in the rest of Ireland to be engaged in entrepreneurial activity.
• Individuals who report that they are risk averse (as proxied through the ‘fear of failure’ attitudinal variable) are much more likely to avoid early stage entrepreneurial activity in Northern Ireland compared to Ireland. This is an important dimension of the ‘regional entrepreneurial culture’ that requires a renewed focus from a policy perspective.
• Individuals from low and medium income households in Northern Ireland are much more likely than those from high-income households to be involved in setting up a new business venture. The evidence from the Ireland model is less conclusive though not contradictory. This finding has importance for the wider debate on the role of enterprise in providing economic opportunity for disadvantaged and marginalised individuals and groups in Northern Ireland. It does not on its own, however, provide evidence of the ability of policy interventions to raise the enterprise potential of these individuals, nor does it provide any assessment of the comparative ‘economic worth’ of the businesses being established. That research is urgently required. The policy challenge in the interim, however, might be to think about ways to encourage individuals from high-income households to engage in entrepreneurial activity. Evidence from the UK would suggest that individuals from high-income households are more likely to be involved in entrepreneurial activity. [10] That on its own might have the effect of raising the level of start-up activity in both parts of the island.

PART 2: BUILDING A FULLY DYNAMIC ENTREPRENEURIAL ENVIRONMENT ON THE ISLAND OF IRELAND — RECOMMENDATIONS

Section 5: Achieving Shared Goals

It is recognised that the environments in Ireland and in Northern Ireland differ in many respects and that, while the individual goals are common, the starting points are different. The recommendations reflect these differences, while emphasising shared approaches to common challenges, where appropriate.

The recommendations focus on the achievement of the following shared goals:

• Increase the level of entrepreneurial activity (Section 6);
• Harness the resources of the education and training sector (Section 7); and
• Maximise the number of innovative and high growth new ventures (Section 8).

Given that new commercial ventures cannot become a reality without finance, a fourth shared goal has been added to the recommendations:

• Ensure that adequate and appropriate sources of finance are available to meet the needs of the entrepreneurs and their new ventures (Section 9).

Section 6: Increase the Level of Entrepreneurial Activity

The importance of the environment in creating conditions in which entrepreneurship can flourish, and in removing all barriers to their greater entrepreneurial activity involvement will depend on access to relevant information, timely support and access to the opportunities created by public sector purchasing. The establishment of entrepreneurial networks and partnerships are essential to enhance information and knowledge sharing among entrepreneurs; to ensure that economies of scale and scope are exploited; new market opportunities are developed; and new technologies are utilised.

A dedicated entrepreneurial forum should be established in which individuals and the various parties interested in entrepreneurship and in starting new businesses may come together to meet, exchange ideas, and obtain relevant advice and information.

Section 7: Harness the Resources of the Education and Training Sector

Nurturing a positive approach to enterprise development among students through those who influence their career choice. The sector has a pivotal role to play in providing well trained teachers who can impart a better grounding in the necessary skills for the next generation of entrepreneurs. The educators must also provide appropriate training for those who are planning new ventures or have become entrepreneurs.

Section 8: Maximise the Number of Innovative and High Growth New Ventures

In addition there must be increased focus on commercialisation of research within the third level institutions on the island. Greater market focus alongside the new technology must be fostered. Innovative new ventures capable of growth are not sector or technology specific and can come from a variety of sources.

Given the size of the local market, new enterprises focused on growth will often need to be supported to export at an early stage of their development. Strong management teams of complimentary skills, sufficient finance to fund the growth, strategic partnerships and focused support to achieve scale are all considered necessary.

Section 9: Access to Finance

There is a clear need to ensure that adequate and appropriate sources of finance are
available to meet the needs of the entrepreneurs and their new ventures.

This should be continuously monitored, gaps identified and regularly reported to policy
makers. As gaps are identified in the availability of finance, these should be addressed.

The procedures, terms and conditions should be simplified and the turnaround time should be shortened for the provision of financial support to entrepreneurs. 

 

Notes

[1]The Irish GEM dataset for 2004 contained 1,596 respondents aged between 18 and 64 years. The Northern Ireland GEM dataset for 2004 contained 4,234 respondents giving an overall sample size of 5,830 respondents for the multivariate analysis. The full report may be accessed on the InterTradeIreland website (www.intertradeireland.com).

[2] To gain further insights into entrepreneurship on the island of Ireland, a series of interactive workshops were held during the last year throughout the island. Over 150 individuals were invited to take part in eight workshops — 4 in Ireland, 3 in Northern Ireland and one which combined invitees from throughout the island of Ireland. The attendees included entrepreneurs, educationalists and researchers in entrepreneurship, business angels, development support executives, undergraduate and postgraduate students. The views and opinions that flowed from these workshops augmented the informed views of over 100 entrepreneurs and experts who
went to make up GEM’s key informants in Ireland and in Northern Ireland as part of the 2004 GEM research cycle.

[3 ]The active planning phase in which the entrepreneur has done something during the previous twelve months to help start a new business, a new business that he or she will at least part own. Activities such as organising the start-up team, looking for equipment, saving money for the start-up, or writing a business plan would all be considered as active commitments to starting a business. These entrepreneurs are referred to as nascent entrepreneurs. Nascent entrepreneurs represent 55% of all entrepreneurs in Ireland and 49% of entrepreneurs in Northern Ireland.

[4] The second phase is the first 42 months after the new venture begins to trade. Entrepreneurs who at least part own and manage a new business that is between 4 and 42 months old and have not paid salaries for longer than this period are referred to as new firm entrepreneurs. New firm entrepreneurs represent 45% of all entrepreneurs in Ireland and 51% of entrepreneurs in Northern Ireland.

[5] Consumer Sectors include some Financial Services, Real Estate, Insurance, Health, Education, and Social Services, and Consumer Services.

[6] Transformative Sectors include Construction, Mining, Transport and Wholesale.

[7] It should be pointed out, however, that sales within the rest of Great Britain are not considered exports from Northern Ireland, while sales to Ireland would be. Hence, Northern Ireland entrepreneurs have a much larger ‘‘home’’ market than have their Irish counterparts.

[8] The Northern Ireland dummy variable was negative and significant.

[9] The inclusion of the four attitudinal variables reduced the importance (i.e. marginally insignificant) of the Northern Ireland dummy in the island model although the sign was still negative.

[10] Harding, R (2005) Global Entrepreneurship Monitor 2004 London Business School and the Work Foundation; O’Reilly, M and Hart, M (2005) Global Entrepreneurship Monitor: Northern Ireland 2004, Invest NI and London Business School.