Introduction – Building Entrepreneurial Capacity in Wales

The University of Glamorgan has been allocated European Union monies to assist in increasing the entrepreneurial capacity of the region through a programme of work entitled Enterprise College Wales (ECW). The programme currently consists of an on-line web based degree in Enterprise, aimed at creating business start-ups, new business ideas and business development and growth in areas where typically, activity has been deficient. This programme is designed to aid communities generate their own economic development solutions through the processes employed by successful entrepreneurs and small business owners. This paper examines the role of ECW in promoting entrepreneurship and development in areas of Wales and examines its relevance compared to the problems faced by small construction firms in the region. The paper briefly outlines the history of the project and the role that education plays in promoting entrepreneurship in the region. It has been documented that small construction firms in South Wales can benefit from programmes aimed at increasing their awareness of business management, marketing, financial management and ICT. The programme can provide this opportunity both flexibly and supportively. It is concluded that the ECW programme may provide tangible opportunities for commercial development thus reducing some of the problems faced by small construction firms in South Wales. INTRODUCTION – BUILDING ENTREPRENEURIAL CAPACITY IN WALES The current state of the Welsh economy, particularly the EU Objective One areas in Wales, has seen it become an important test-bed for changes in policy emphasis and the need to adjust the policymaking and implementing process. There is seen to be an explicit need for policies that no longer focus on imposing solutions from outside the region, by governments and multinationals, but instead, focus on solutions that are derived from local individuals, communities and firms themselves. In particular, there is a need for increased entrepreneurial activity. However, at the heart of economic development policy there is the need to promote economic development. The conventional model of national economic growth implies that SMEs essentially played a secondary role in the economy supporting the activities of larger more established firms (Reynolds et al 1999). However, models that are more contemporary afford entrepreneurship an active role in generating economic prosperity. In the early 1980s in a number of EU countries, particularly the UK, the major policy and strategic emphasis was placed on stimulating new firm formation (Storey 1994; Burns and Harrison 1996). This emphasis was due in part to evidence that suggested the smallest firms were responsible for a preponderance of innovation and employment creation (European Commission 1996). The extent to which market opportunities can be identified and exploited is determined by the degree to which firms have the necessary entrepreneurial capacity to establish, survive, and grow. The net effect of this business dynamic in which firms are created, survive and grow or decline and fail, represents the contribution made by the entrepreneurial sector to a nation’s economy (Reynolds et al 1999). In other words, it is argued that in addition to the contribution made by the small business sector in the secondary economy, the existence of entrepreneurial firms ensures that the sector also makes a direct contribution to national economic growth. Unfortunately, Wales generally has a poor record when it comes to entrepreneurial activity and this is to be remedied by spending in six priority areas (objective one). The policy focus within Objective One areas has been placed upon the indigenous growth of small Welsh businesses, and entrepreneurship in general. The GEM (Jones-Evans and Brooksbank 2000) survey indicates that only 1.4% of the adult Welsh population were participating in start-ups, half the level of Scotland (2.7%), well below the UK average (3.1%) and a seventh of the US figure. This follows through into new firm participation with Wales at 1.4% compared with 1.8% in Scotland, 2.2% in the UK and 4.7% in the USA. In addition to this low start-up rate, however, whilst Wales has a relatively high survival rate, the firms do not grow. Jones Evans and Brooksbank therefore advocate a number of areas where support needs to be given. These include financial support, research and development, infrastructure, culture, and importantly, education and training. Research has indicated that small firms across industries are severely lacking in key management skills in particular financial management, marketing, entrepreneurial skills and human resource issues. The construction industry is no exception (Miller et al 2000). The concept of the Enterprise College Wales project is based upon forming an alliance of complementary organisations in the commercial, educational, media, and communications, public and voluntary sector to deliver training and skills development. The clear focus is based upon a broad partnership across these sectors, looking to: • Provide a focus in Wales for the development and promotion of excellent management, entrepreneurship and ICT skills in Welsh industry, commerce, public sector and voluntary organisations. • Form the hub for future research and learning within Wales for entrepreneurship, small business management and successful practice in e-commerce. • Help to create an environment for the regeneration of the Welsh economy. The strategic approach taken by the University of Glamorgan and partners through this project is geared towards addressing weaknesses in the small business sector. Particular emphasis is placed upon the slow adoption of new technologies, the low take up of ICT, low activity in e-commerce, and lack of entrepreneurial tradition. In the absence of this work based learning opportunity for many areas of Wales, E-college provides an important alternative to obtaining such information. It provides an opportunity for all members of the region to engage in the new technologies, and gain access to training and support to encourage entrepreneurial activity. The on-line delivery mechanism has been designed in recognition of the need to introduce flexible methods of delivering education and training to the community. It also provides the potential for educational institutions to develop the skills of local populations (using local FE institutions as partners and focal points for the face-to-face contact). This requires innovative approaches to delivery, use of ICT and new technologies to support open and distance learning, and learning in the home (paid from Objective One funds). The programme addresses a number of the key aims of the National Learning Strategy of Wales. These include: providing better access to information and provision; developing new measures to increase and widen participation; strengthening co-operation, collaboration and partnership at the local, regional and all-Wales level. These all improve the entrepreneurial capacity for the region, particularly as the e-college course is specifically designed to cater to those who wish to start, establish and then grow their own new small firm. The BA Enterprise Award is focused on developing entrepreneurial skills in individuals. Its primary aim is to help individuals establish stabilise and growth their own small enterprise. In order to achieve these objectives, technologies of e-communication, virtual classrooms, web technology, video conferencing, broadcasting, distance learning techniques and traditional educational excellence are being used. It is hoped that the use of these technologies will also stimulate their introduction into businesses large and small throughout Wales. As will be seen, improving these skills areas could be crucial in the construction industry in Wales, and ECW could be just the vehicle to use to undertake this task. INCREASING ENTREPRENEURIAL CAPACITY IN WALES As stated earlier, Wales is not performing in terms of its economic performance and business start up and development. Public policy is aiming to address these failings by concentrating upon the provision of support and training for smaller firms in the region. The Global Entrepreneurship Monitor Report (Jones-Evans and Brooksbank 2000) recognised the need to increase the resources provided to smaller firms in order that they can develop. This development would obviously assist the wealth and prosperity of the region. Given the inter linked importance of education and entrepreneurship, it would seem sensible to utilise approaches that can simultaneously help meet all of these objectives. Progress in Information Computer Technology (ICT) potentially offers such an approach, in a number of different ways. For example, in the UK, Edwards (1996) outlined a clear example with respect to education specifically in his explanation of community learning utilities which exploit ICT to create widespread affordable access to education and training resources, including for those whose previous access was disadvantaged. As he argues: “It does not seem beyond the realms of probability that provision of community access to electronic highways at least for education and business purposes could bring a tremendous boost to a local economy. It is true that start-up costs will be very high, and the pay-off uncertain when seen from the point of view of a small business or even a college. However, there are numerous ways in which competitive advantage and social equity can be delivered through public enablement of community access to electronic highways”. P14. It is also commonly agreed that knowledge will become increasingly important in sustaining a nation’s competitive advantage (Packham and Miller, 2000). In December 1999, the EC also launched the European initiative, with the aim of accelerating the uptake of digital technologies across Europe and ensuring that all Europeans have the necessary skills to use them. The application of digital technologies has become an essential factor for growth and employment in this newly emerging knowledge based or e-economy, which is built around the Internet. The EU e Learning initiative addressed the need for Europe’s education and training systems to adapt to the knowledge society. A proposal has also been presented to create an action programme for encouraging ‘European content’ on the Internet. In addition, to these general themes, there are specific issues regarding enterprise education. The European Communities (BEST) report (1998) recognises that: • Meeting the modern requirement for entrepreneurial and management skills must be evident throughout the national systems for education and training. • There should be specific training for entrepreneurship, with an emphasis on practical and useful skills, supported by appropriate incentives. • Training systems should be more flexible allowing for movement between academic studies and vocational training in companies, and for changing needs over a lifetime of learning. • The application of IT is important in providing training. In company training and opportunities for further training should be brought up to date and use the latest ICT. • There is a strong need for support for tele and long distance learning methods. These help beneficiaries to become familiar with ICT and reduce the time spent in institutions, allowing more experience that is practical. We live in a digital age, the speed of technological advancement is transforming our society, and therefore it shouldn’t be surprising that this technology has the potential to revolutionise training and learning. (Ravet & Layte, 2001:2). Online learning offers access, through computers and the Internet. It has been recognised that it is a form of delivery that can address some of the difficulties faced by individuals. It can benefit those that find traditional forms of education problematic. On-line learning can be presented in the most effective format according to its users and in manageable parts. An online system can, “Track an individual’s progress on their career plans or against targets for the whole organisation...it is the most practical and cost effective way to update skills and share information between large numbers of people.” (Hammond, 2000). For both organisations and individuals the benefits can be summarised as the following: • Cost savings. • Increased access to training. • Flexible and continual learning. • Knowledge on demand. The Internet can be used to simply transmit Web-based training materials to the users computer to be used "off-line" by downloading the course materials. Alternatively, the Web can be used as an online instructional medium itself. Whilst some technical issues remain which influence the speed of transmission of materials – especially large graphics or video files for example – the Web is capable of delivering text, graphics, animation, video and audio. PROBLEMS FACED BY SMALL CONSTRUCTION FIRMS These types of initiatives are certainly to be welcomed. Back in the 1970s the Bolton Report (1971) reported that the small business sector was very likely to be the seedbed from which the large firms of tomorrow would develop. However, subsequent research has reported that in the majority of cases small ventures remain small (Smallbone et al 1995). In fact, it is maintained that in light of empirical research, failure seems to be a more common characteristic of the small business sector (Storey 1994). Moreover, the Department of Trade and Industry’s White Paper on Competitiveness (1998) stated that whilst the UK had more people wanting to start a business than many other countries; ‘[When] compared to the United States, too few of these businesses achieve growth...[because] they lacked a competitive edge and their founders often lack [ed] the ambition and capabilities to manage growth’ (p. 14). As Hall (1994) highlights in his study of 1,064 small firms, the main cause of failure was the shortage of working capital. This may be more of a wider issue in terms of motivation and the delivery of quality to clients. Nash and Rock (1996) offer that one in eight small firms in the UK cite cash flow and late payment as their greatest worry. The short term strategic direction of the firm may be influenced by satisfying more than one client due to short-term financial crises. Small firms have to spread the work in the hope that payment will be received from some creditors. The owners of young firms are often likely to suffer from inadequate funding, poor product ranges and inefficient marketing (Hall 1994). The (UK) Rennes survey (Hankinson et al 1997) argues that owner managers fail to address weaknesses in financial management and spend less than five hours per weak extracting data from financial accounts. Many small firms fail to keep adequate financial records and are often unaware of current financial situations. Owner managers also admitted to spending the same amount of time analysing the firms’ strategic aims and objectives both in the short and long term. Ghosh et al (1993) report that the satisfaction of customer requirements, service, a good management team and good networks were the chief success factors of over 100 manufacturing firms. This can be compared to Smyth (1999) who argues that switching costs are high for contractors and clients if the product delivered is complex, within a complicated relationship. As payment is regarded as an important variable within contractual relationships, a tenuous link can be made between payment and the type of service provided by all parties within the relationship. Smyth (1999) argues that costs can be reduced through the supply chain if the cost of exit from the relationship is high. He fails however, to attach significance to the contractor small construction firm relationship in that financial benefits can be achieved if both parties can understand and accept interdependence. Developments in research indicate that the primary problems faced by small firms are sales/marketing, human resource and management planning (Hankinson et al 1997). It is the owner-manager firms employing less than 50 employees that take responsibility for much of the Human Resource Management (HRM) and employee relations. It is also interesting to note that many firms have very little understanding of the marketing concept and view it merely as the promotion or advertisement of a product or service. It is however debated that the type of research design can have an adverse effect upon the research results. The (UK) Rennes survey (Hankinson et al 1997) conducted between 1995-1997 surveyed 800 small firms and found that owner managers viewed their marketing skills as weak. Stokes (2000) however, argues that small firms are often not weak at marketing but simply fail to embrace marketing philosophies. Stokes argues that many entrepreneurs undertake marketing in ways that may be construed as unconventional. Customers are identified by elimination. Entrepreneurs or owner managers rely on interactive marketing methods such as word of mouth rather than the marketing mix. They monitor the market by gathering pieces of information from various uncontrolled sources. It must also be noted that many small business start-ups are by people with good business ideas and not business acumen. The study of over 1200 small firms by Hueng and Brown (1999) confirms that management, planning, obtaining external finance and marketing all continues to be problematic. It is worthy of note that the regulatory environment is also of concern to small firms. Many owner managers are of the opinion that the level of bureaucracy is increasing rather than decreasing. The (UK) Rennes survey (Hankinson et al 1997) also concluded that small firms fail to address weaknesses in marketing, finance and personnel. The sophistication of the small firm in terms of planning is paramount in terms of success and increased profitability. In the construction industry the level of planning in small firms is critically low (Hall 1994). This is not to say that planning can categorically increase performance and sales turnover. Formal planning can undermine the creative thinking of owner managers of small firms. Hall (1994) presents that planning in small construction firms and general increases in management expertise may indeed be beneficial. In addition, he argues that market segmentation, pricing strategies and environmental analyses are all strategies that can increase business awareness and increase profitability. Smith (1998) debates that the correct marketing tool can assist firms in achieving competitive advantage through communication. The message of a firm can be presented to the market in a form that will allow customers to clearly understand what the firm is offering. The correct communication tool can afford firms rewards whilst incorrect marketing communication techniques can waste large sums of money. The methods most likely to be considered by small construction firms are: • Personal selling and sales. • Advertising. • Exhibitions. • Publicity and public relations. • Sponsorship. • Word of mouth. • Internet. The UK construction sector has placed very little emphasis on the development of the SCE, seeing it merely as a part of the fragmentation of the industry, due to the structure of demand (Morton and Jagger 1995). Large contracting firms have concentrated on core activities and subcontracted noncore work to small construction firms. This has allowed large firms to respond quickly to demand fluctuations and survive. Small firms, however, have failed to improve technical competency and efficiency and have experienced problems that ultimately affect the delivery of a competent service to clients (Cox and Townsend 1998). Within the construction arena, small firms have to ensure that the interface between contractors and their own firms is effectively managed. It could be argued that a supply chain approach ensures that contractors are actually the customers of small construction firms. In some ways, this relationship is unique in that the industry is project led and temporary, thus ensuring that many supply chains are failing to form over time (Imrie and Morris 1992, Cox and Townsend 1998). The nature of the industry can result in many short-term relationships for small construction firms within regions. A further complication for small construction firms arise due to the fact that one (temporary) arrangement can result in a significant proportion of total turnover within a trading year. The effective management of resources is therefore vitally important for small construction firms. The level of dependency can be very significant and may result in firms becoming financially fragile. Entrepreneurship theory has identified that the management of finance is crucial to the survival and development of small business generally. Crucially, it has been recognised that the construction industry should focus resources upon training and development in order that it can continue to be a significant contributor to the UK economy. It is also necessary for the industry to develop both culturally and technologically, in order to be successful in a changing market environment. It is argued that for successful technological and process development it is necessary to recognise that the strategies, motivations and aspirations of small and large construction organisations are fundamentally different. Smaller firms (often subcontracting) cannot always be treated as "little big firms" and many small construction firms demand particular attention in terms of survival and development. Research has indicated that small construction firms in Wales are particularly poor at embracing ICT that can have an adverse effect on those large contracting firms aiming to advance technologically (Miller et al 2000). THE POTENTIAL FOR E-LEARNING AND SMALL CONSTRUCTION ENTERPRISES It is thus considered necessary to account for all the factors affecting the survival and development of small construction firms, as small firms are heterogeneous in nature. It is evident from the literature that small firms are complex and multi-faceted. The understanding of small construction firms is no different in that the owner managers involved are diverse individuals with different levels of problems and opportunities. For development to succeed we must understand owner managers and the firms ability to develop. The literature recognises that in terms of development, the internal characteristics of small firms are important. Owner managers of small firms are fundamental to the development and survival of small firms and should be acknowledged as essential to development. It is proposed that small construction firms can thrive if assistance is offered through relational development. The literature acknowledges those construction firms performing, as subcontractors are essential to the industry and can assist in the reduction of costs (Miller et al 2002). Owner managers of small firms are often unable to manage in a complex environment and to manage resources effectively and efficiently. Small firms generally, have difficulty surviving within complex markets and often have limited management experience. There is evidence to suggest however, that training and development can assist in the reduction of market uncertainty and assist small firms to manage complexity. This is viewed as vital due to management weaknesses having a profound effect upon survival. Small businesses often fail in their ability to manage people competently and can possess poor human resource and financial strategies. Financial management, marketing and planning are issues that may be compounding the problem of small firms surviving and developing in complex markets. The programme developed at the University of Glamorgan for the Enterprise programme maybe a useful development tool for small construction firms. Many reports exist that support the need for training and development of small firms within the industry. It is recognised that the current delivery of the programme may negate the problems presently faced by small construction firms. It has been documented that owner managers of small firms cannot find the time to attend courses in traditional forms of educational institutions and at training centres (Miller 2000). The electronic mode of delivery may be a way of providing a cost effective and acceptable solution to some of the problems faced by small firms in the industry. The commercialisation of the programme into bespoke packages for clients, contractors and subcontractors may assist in the regeneration of the South Wales region. We have to date been involved in discussions with many institutions throughout the world that are actively pursuing the opportunities the programme offers to individuals firms and regions. These opportunities may go some way in terms of enhancing the entrepreneurial competencies required by many regions across the globe.