I am delighted to be here this morning to speak to members about the European Commission Green Paper on Entrepreneurship in Europe. I propose to outline the background to the Green Paper and the response the Department fed to the European Commission on the Green Paper.
The Green Paper, which was published in January this year, aimed at stimulating debate among the widest possible audience of stakeholders on the best entrepreneurship policy for the future. It assessed the state of entrepreneurship in Europe, available policy options and asked a number of questions. It considered policy options with regard to two key issues for Europe. First, why do so few people start a business when a relatively large number of individuals express their interest in entrepreneurship and, second, why do so few European enterprises grow and why do those that grow do so at such a modest rate? Besides these, it considered the role of society at large in meeting these challenges. Entrepreneurship is about blending risk-taking, creativity or innovation with sound management within a new or existing organisation and can occur in any sector or type of business. Compared to the US, people's inclination towards entrepreneurship in Europe could definitely be improved. There is also less involvement in new entrepreneurial initiatives, less firm growth and more adversity towards risk-taking. In general, Europe needs to encourage new entrepreneurial initiative and to help unlock the growth potential of the European Union's existing firms, among which there is no lack of ambition - some 30% of Europe's 20 million SMEs express a desire for growth.
An individual's decision to start a business or have the ambition, as an entrepreneur, to take risks or expand is conditioned by a multitude of factors, including the existence of opportunity, entry barriers, skills and preferences. While running a business, entrepreneurs are faced with many obstacles for business development and growth, such as complying with administrative requirements and lack of finance or skilled labour. To seize new opportunities in the changing markets, businesses should be encouraged to innovate or expand beyond national borders or even, particularly with larger firms, to allow their own employees to exploit ideas that would otherwise be left unexplored. Building an entrepreneurial society involves everyone. Positive attitudes towards entrepreneurial initiative and failure can help develop entrepreneurial ventures. Furthermore, entrepreneurship can be applied to achieving social and societal objectives.
The Green Paper suggested adopting a co-ordinated approach to entrepreneurship policy, involving all the relevant policy makers, to provide a coherent and comprehensive response to the needs of entrepreneurs. It asked questions under three pillars for action, namely, bringing down barriers to business development and growth, balancing the risks and rewards of entrepreneurship and a society that values entrepreneurship.
The Green Paper went on to pose ten questions for the European agenda on entrepreneurship as follows. What should be the key objectives for an agenda for entrepreneurship in the European Union and how should these relate to other political ambitions? How can we build a model for entrepreneurship in an enlarged Europe? How can we improve the availability of finance - tax measures, public private partnerships, stronger balance sheets, guarantees - and what alternatives to bank loans should be promoted, such as business angel finance, leasing, factoring and micro-loans from non-bank lenders? How can entrepreneurs be supported in obtaining external finance? Which factors most hinder growth - lack of mutual recognition and EU rules or their non-implementation at national level, national tax provisions or the situation on the labour markets? What actions are best suited to supporting growth and internationalisation, for example, trade missions, market analyses, clustering and networking, information and consultancy services? To ensure high quality businesses, what training and support should be offered for a business start-up such as basic training - compulsory or voluntary - incubators, mentoring and business development, for example, networks, courses, mentoring, distance learning such as e-learning? Should there be services tailored to the needs of specific groups like women or ethnic minorities or businesses such as knowledge based activities? Should the quality of delivery of support services be improved using ICTs, professional standards? Are the obstacles and incentives for business development and growth in the European Union similar for entrepreneurs in the candidate countries, and does the forthcoming enlargement call for specific measures in the candidate countries? What can member states do to make the balance between risk and reward more favourable to promoting entrepreneurship, such as reducing the negative effects of bankruptcy, making more social benefits available for entrepreneurs, reducing the tax burden either in terms of administration or rates? How might more prospective entrepreneurs be encouraged to consider taking over rather than starting a new firm, for example, buyers and sellers databases or marketplaces, special training for family owned businesses, management or employee buy-outs? How can spin-offs be made more attractive, for example, by management buy-outs, showcasing, specialised advice, tax or other provisions for employees and their employers while starting a business? How can education support the development of the awareness and skills necessary for developing an entrepreneurial mindset and skills, for example, entrepreneurship training as part of a school's curriculum, getting entrepreneurs into the classroom, apprenticeships for students to work with experienced entrepreneurs, more entrepreneurial training in universities, more MBA programmes, matching entrepreneurial training with public research programmes? What could business organisations, the media and public authorities do to promote entrepreneurship, for example, publicising role models, media campaigns, open door days of firms, award schemes for entrepreneurs and at what level should this be done European, national, regional or local?
In responding to the EU Green Paper, we pointed out that in Ireland's most recent social partnership agreement, Sustaining Progress, the Government was already committed to placing a special emphasis on entrepreneurship and small business. That agreement explicitly recognises that:
Entrepreneurial activity is vital to our national capacity to create wealth, to encourage innovation and to continuing adaptation and greater efficiency in the economy . . . The Government recognise the importance of fostering an enterprise culture and in fostering and supporting entrepreneurship. Specific initiatives in support of entrepreneurship will be taken, including, in particular, to support
Entrepreneurship by women and in the social economy . . . The Government recognises the central role that small business plays in the future growth of our enterprise base. The Government will work to ensure that the conditions for small business and entrepreneurship remain competitive and the stimulation of small business creation will remain a central feature of our enterprise policy.
Before finalising our response to the Green Paper, the Department of Enterprise, Trade and Employment consulted a wide range of bodies and agencies for their observations and comments. These included other Departments, semi-State bodies, representative organisations and management institutions. Responses were received from the Departments of Finance and Education and Science, Enterprise Ireland, the city and county enterprise boards, Chambers of Commerce of Ireland, the Irish Exporters Association, Irish Management Institute, Irish Internet Association, Small Firms Association, Irish Small and Medium Enterprises Association and the Consumers Association of Ireland. Copies of their comments were attached, in their entirety, to the Department's submission in order to ensure that the voice of small business was heard in Brussels on this vital subject.
I will now outline our formal response to the Green Paper. In order to encourage entrepreneurship in our societies, we recognise that small beginnings are valued as much as high potential start-ups, that enterprise initiative in local and rural communities are as much a society part of the enterprise society as high-tech IPOs or venture capital activity. The promotion of enterprise - and the enterprise culture that underpins it - helps foster dispersed economic development and balanced regional growth. We have already identified six core themes to advance our vision of building an entrepreneurial society which will require a range of co-ordinated actions across different Departments and agencies. The six core themes are recognising the spatial and societal dimension to entrepreneurship, building awareness of entrepreneurship as an employment option, supporting a culture of entrepreneurship, providing information, helping business growth eliminating obstacles and support services and access to finance. We believe that the key objectives for any agenda for entrepreneurship in the EU should concentrate on similar areas to these. There should also be a concerted effort to place entrepreneurs and their requirements at the centre of policy making. Legislators must consciously take a "think small first" approach when drawing up new policies and legislation. This approach will have direct benefits for the 98% of businesses which are classified as SMEs in the EU and will, ultimately, manifest itself in greater productivity and job creation.
The findings of the last global entrepreneurship monitor report show, globally, that men are about 50% more likely to be involved in entrepreneurial activity than women. Ireland has one of the lowest rates of female entrepreneurship in the EU. Some of the reasons attributed to this are social conditioning, traditional low labour force participation among married women and women in employment working in non-line responsibilities. According to the OECD, there is a low but growing rate of women owned businesses throughout the developed world. The OECD also found that female owned businesses experience a lower growth rate and are more likely to fail than those of their male counterparts. We clearly need to address this issue throughout the EU to see what actions can be taken to improve women's involvement in enterprise.
The equality division of the Department of Justice, Equality and Law Reform is currently undertaking a study investigating the number of women in Ireland as business managers or entrepreneurs. It is hoped that when completed, this study will suggest appropriate courses of action to address the low levels of female entrepreneurs in Ireland. Our city and county enterprise boards have a specific remit to encourage entrepreneurship among less represented groups. Targeted training, seminars and awareness building are provided for women. Local level entrepreneurship has been supported here by a number of local based agencies and groups such as the city and county enterprise boards and Leader. The business innovation centres and the community enterprise centre initiative funded by Enterprise Ireland also have the capacity to stimulate local enterprise and to provide practical support and assistance to enterprise at local level. The county development boards are in a position to overview these various initiatives to make sure the needs of local areas are met.
It is the view of many of our small business representative bodies that the Commission's action plan must depict entrepreneurship in such a way that a large proportion of the population sees it as a viable career. An entrepreneurial career, in many cases, can lead to rewards in excess of those associated with a permanent pensionable job. These rewards can include increased monetary earnings, better quality of life and increased job satisfaction.
We feel that the Commission, in conjunction with the member states, should encourage the media to focus more on the benefits of entrepreneurship to society. This focus could entail highlighting entrepreneurs' contribution to employment and wealth creation and corporate social responsibility in the national economies of the member states. Celebrating and recognising entrepreneurs through award schemes is also a useful form of highlighting entrepreneurial achievement.
Building entrepreneurship awareness through the education system is probably the key determinant in building a culture supportive of entrepreneurship. There is a growing recognition of the important link between education and training and its contribution to entrepreneurial activity. We strongly agree with the Green Paper when it describes enterprise as a state of mind. This state of mind must be developed in students from an early age, through a combination of a firm foundation in general education, good communications and interpersonal skills, critical thinking and evaluation skills and the development of problem solving approaches.
At a more advanced level, ensuring students have an appropriate array of knowledge and skills and specific training in enterprise skills, should encourage enterprise. Graduate enterprise schemes, mentoring schemes and business innovation units can play a particularly important role in the promotion of entrepreneurship. By supporting graduates with a business idea to start their own business and addressing gaps in their learning - be it in such areas as law relating to intellectual property, business planning or financial skills - member states will not only be promoting entrepreneurship but will also be improving the likelihood of success of new ventures operating in their national economies.
The availability of good information and advice are key factors in the provision of enterprise support services. Surveys of small businesses have revealed a widespread need for basic information about setting up and running a business. In Ireland, our aim is to ensure that our business support services are tailored to the needs of new entrepreneurs of small and micro businesses and that their services are given visibility and profile at national and local level. Enterprise Ireland has recently been cited as a model of best practice for the provision of services and assistance to business in a European Commission publication in this area.
One of the perennial complaints from small businesses is the burden which Government places on enterprise through excessive regulation. Red tape is also perceived as a barrier to setting up one's own business. Regulation is, of course, warranted in the public interest to maintain high standards in corporate governance, health and safety, the environment, the protection of employee rights and other areas. However, the volume of state requirements pressing on small business can be considerable. An OECD study of businesses' views on red tape reports that small businesses are critical of regulations in terms of their inflexibility, consistency, effectiveness and clarity. It is estimated that the cost of complying with red tape can come to approximately 4% of annual turnover of these companies. However, for companies with less than 19 employees, the compliance costs reach more than twice that figure at 9% of turnover.
One of the most critical comments of the current regulatory burden placed on firms, which resulted from the consultation on the Green Paper in Ireland, was from the small business representative organisation, ISME. According to it, companies of all sizes throughout the European Union devote countless hours to complying with the administration work as required by their national governments, and in many cases the European Union. Compliance with Government regulatory requirements imposes additional costs of thousands of euro on business, particularly on small firms and new starters. They are a barrier to market entry and a significant impediment to business expansion.
As a result, any follow up action plan to the Green Paper must make a concerted effort to reduce any unnecessary and excessive administrative burden on businesses at both national and European Union levels. Our Government has prioritised the need for better regulation. We are committed to introducing regulatory impact assessment on new legislation to ensure that the regulatory burden is not disproportionate to its objective. An innovative approach to simplifying legislation through "restatement" has commenced, making the law available in a more readable form. We are not there yet but we hope that through a process of dialogue and consultation and using these new procedures, we can keep the compliance burden to a minimum. Our aim is better Government through better regulation. This objective should apply equally at EU level, particularly as most of our laws stem from the European Union.
The Green Paper consultation process in Ireland revealed that firms believe that the completion of the Single Market is imperative for helping business grow. Many businesses find that the Single Market is not a reality for enterprises in the European Union. Variations in licensing laws, contract laws, regulatory differences, language barriers and lack of market information act as a barrier to growth for many entrepreneurs. Exporting or importing within the Union is a time consuming and expensive process. Even the eradication of exchange rate risk that the euro has conferred has not had the desired result of increasing imports and exports within the European Union as the barriers are often still too great to overcome.
In addition to the burdens experienced by enterprises in exporting or importing goods within the European Union, a single market does not exist within the services sector. One way to ensure greater competitiveness of business related services is to facilitate greater access and competition from overseas services providers. Increasing the tradability of service sectors would mean that rapid spending growth in the domestic economy would result less in services inflation. As a result, we strongly advocate the completion of the EU Internal Market for services as soon as possible in order to encourage cross border competition in services that are currently non-tradable.
Along with these issues, small businesses also face additional challenges - rapid growth in the knowledge economy, adjustment to the pace of technological change, globalisation and the need to develop and diversify markets, ever more demanding customers, whether in sub-supply or end user context and the attraction, development and retention of people with appropriate skills.
The Green Paper outlined the need to gear European enterprises to grow. In order for this to become a reality the Commission's action plan needs to address the challenges already mentioned. It is imperative that if we are realistic about achieving the Lisbon objective of making Europe the most competitive and dynamic knowledge based economy in the world by 2010, we need to encourage a business environment that is benign and which encourages firms to grow. Therefore, we must reduce the obstacles impeding business growth, increase our support services to businesses and make the Single Market a reality for all our entrepreneurs and businesses.
The Green Paper asked what training and support should be available for businesses. Member states should provide a support structure that delivers quality training in a broad range of appropriate areas. Such training could incorporate modules on developing business plans, successfully setting up a company, gaining access to finance and marketing. The delivery of such training needs to be flexible and should, if possible, take advantage of modern communications to facilitate distance learning.
Support services should also cater for marginalised groups in society. We are all aware of the role entrepreneurship plays in integrating people into our societies. Specific programmes designed to promote entrepreneurship in ethnic minority groups and among females should become a common feature in regions that are currently exhibiting low levels of entrepreneurial participation from these groups.
The creation of Enterprise Ireland and the city and county enterprise boards heralded a new era in Irish entrepreneurship and in the growth of Irish owned enterprise, leading to increased employment, higher exports and increased sales. Entrepreneurship and innovation are strongly linked with small enterprises as many companies start out small and provide opportunities for realising new ideas. Our enterprise agencies are committed to building capability in indigenous firms, including the use of technology to improve business processes.
Affordable and easy access to finance is the lifeblood of every business. Whether it is to enable an enterprise to start up, expand or simply get through a tight cash flow period, access to affordable, long-term finance is essential. However, the difficulty in accessing such finance is compounded by the fact that most enterprises at the start-up stage have no track record and are unattractive to outside equity investors. They also usually lack an asset base against which they can provide security for borrowings. They can face major difficulties in finding finance. Access to affordable finance is therefore, one of the most important issues the proposed action plan needs to address.
Currently, in Ireland, we recognise the fact that the risk capital market has not developed to the point where it is robust enough not to require public support. Although certain sectors - most notably sectors with high potential for growth - currently have satisfactory access to private risk capital, there remains a significant lack of such risk capital in many other sections thus warranting at least initial public funding. Private investors may require companies to begin showing a return on their investment almost immediately which in many circumstances may not be realistic. In order to invest in companies, many private investors such as venture capitalists require substantial share capital. This is an extremely unattractive option for many businesses. Responding to this situation, Enterprise Ireland has established several venture capital funds to facilitate business access to finance. The various funds provide the necessary financial support to a range of businesses predominately high potential start-ups or HPSU. However, Enterprise Ireland has also ensured that there is finance available for companies which are in the start-up stage and for specific sectors, such as the information and communication technology sector. Funding for Enterprise Ireland's venture capital funds would only result in Enterprise Ireland taking up a maximum of 10% of the ordinary share capital of a company thereby ensuring that the entrepreneur retains virtually full control over their business.
The experience of the county enterprise board grant support scheme suggest a financial support to start-ups at the earlier stage can also leverage additional funding from banks. The outcome is that firms are more appropriately funded at the critical start-up stage and consequently their survival prospects are considerably enhanced. The lower failure rate of firms assisted by county enterprise boards tends to confirm this fact. We will continue to keep under review the landscape for early stage financing for start-ups and will work to address failures where the market does not respond to the needs of small business.
Turning to the next steps in terms of the Green Paper the public consultation process conducted by the European Commission on the Green Paper has now finished. I understand that more than 240 written responses were received from 20 countries. The European Commission is now processing these responses and a preliminary overview of the key issues raised and challenges identified will be put to the high level enterprise policy group which I will be attending in Brussels tomorrow. Following discussion there, the intention is that the Commission will present an action plan for entrepreneurship before the end of this year. This will condense the responses received and the contents of the Green Paper and will cover areas of both Community and national competence. At this stage it seems there is recognition that national and regional needs vary widely across Europe in terms of policy implementation and it seems to have been accepted that one size does not fit all. Accordingly, it is likely that the action plan may develop a menu of options allowing member states and regions to identify specific needs and on that basis to define policies and actions suited to their own circumstances. Whatever the action plan does contain however, the committee may rest assured that it will continue to be our primary objective to stimulate and support the conditions and factors which will lead to high levels of entrepreneurship in this country and that we will continue to engage with wider Government, our development agencies and business representative organisations to ensure that this happens. I hope my presentation has been informative for the members of the committee.