Entrepreneurship on the Island of Ireland 2003

Published: 2003

Executive Summary

It is now well accepted that entrepreneurship is an important contributor to economic growth, employment, innovation, and competitiveness. Policy makers on the island of Ireland, in common with policy makers throughout Europe, have increasingly articulated the importance of fostering an environment that is supportive of entrepreneurs and of directly supporting individual entrepreneurs. This report represents the first in-depth assessment of entrepreneurial activity on the island of Ireland.

The report is based on the GEM research, which was carried out separately by the GEM research teams in Ireland and in Northern Ireland during 2003, and was made possible through the support of InterTradeIreland, Enterprise Ireland and Invest Northern Ireland (NI). It has been co-authored by Paula Fitzsimons (GEM Ireland), Colm O’Gorman (GEM Ireland), Mark Hart (GEM Northern Ireland) and Eileen McGloin (InterTradeIreland).

The European Commission has recognised that an ‘entrepreneurial deficit’ exists between the
European Union and the United States. Given the importance of entrepreneurial activity to economic growth and development, the Commission argues that governments and policy makers in Europe must build and sustain a regulatory, fiscal, and cultural environment that is supportive of entrepreneurship. Policy makers on the island of Ireland have recognised and are responding to this challenge.

The objective of this initiative is to use the GEM research to provide a consistent and reliable way of measuring entrepreneurial activity and the concerns of entrepreneurs in order to provide policy makers on the island of Ireland with unrivalled knowledge about entrepreneurship. It is intended that this informed assessment of entrepreneurial activity will facilitate the sharing of knowledge and experience among all those interested in entrepreneurship throughout the island and will assist in achieving the collective goal of encouraging economic growth, prosperity and
competitiveness through fostering a fully dynamic entrepreneurial environment.

Using the unique data collected by the GEM research project, the authors report on the overall number of entrepreneurs, the people who are acting as entrepreneurs, the type of new businesses that are being started, the manner in which new businesses are being financed, the human dimension of entrepreneurship, and an assessment of how supportive the environment is for entrepreneurship.

The report suggests that the differences in the extent, scope, and trends in entrepreneurial activity between Ireland and Northern Ireland may be due to differences in policy objectives
and policy interventions; in the personal social context of the adult population (belief in skills to start a new business and presence of role models); in rates of informal investment in new
businesses; in the general economic environment; and in the demographic profile of the population.

The following points are a summary of the main characteristics of entrepreneurial activity
on the island of Ireland:

• There are over one quarter of a million adults active as entrepreneurs. That is, one in every fourteen adults on the island of Ireland is an entrepreneur.
• Specifically 253,000 adults were currently active as entrepreneurs on the island of Ireland in 2003. Of the 253,000 entrepreneurs, 147,000 are nascent entrepreneurs (58%) [1] , and
  106,000 are new firm entrepreneurs [2] (42%).
• There are approximately 200,000 entrepreneurs in Ireland and approximately 53,000 entrepreneurs in Northern Ireland.
• The great majority of these are responding to a perceived opportunity.
• The total entrepreneurial activity (TEA) rate is higher in Ireland (8.1%) compared to Northern Ireland (5.2%). [3]
• The rate of entrepreneurial activity on the island of Ireland is significantly lower than the rate in the US, where it is almost 12%. This suggests that there is significant scope for increasing the levels of entrepreneurial activity on the island of Ireland.
• Entrepreneurs on the island of Ireland tend be aged between 35-44 years of age, are male, have a relatively high level of education, and are exploiting entrepreneurial opportunities.
• There are relatively few women on the island of Ireland active as entrepreneurs. (Ireland 3.7%/Northern Ireland 3.5%).
• Four sectors account for the majority of entrepreneurial activity on the island of Ireland. These are ‘Business Services’, ‘Retail’, ‘Consumer Services’ and ‘Construction and Mining’.
• Like most entrepreneurs everywhere, the great majority of entrepreneurs on the island of Ireland replicate an existing product or service and start a ‘lifestyle’ business, that is, a small business for which they have no growth aspirations. For example, two thirds of entrepreneurs expect to employ less than five employees in five years time; and the majority of new ventures being started by entrepreneurs on the island of Ireland have little or no innovativeness.
• A relatively small but significant proportion of entrepreneurs throughout the island, however, believe they are innovative and/or have ambitions to grow their new business. A higher proportion of entrepreneurs in Ireland have high growth aspirations for their new businesses (16%) than is the case in Northern Ireland (8%).
• Access and availability of finance is a key issue for entrepreneurs on the island of Ireland.
• Most entrepreneurs use relatively small amounts of money to start their new business.
• Most entrepreneurs expect to invest relatively small absolute amounts of their personal capital into their new business.
• Entrepreneurs expect to fund the deficit between their own resources and the funds needed to start the business by getting funds from a combination of banks and financial institutions, government sources, and informal investment from ‘family, friends and fools’.
• Nascent entrepreneurs in Ireland believe that they will have a larger funding gap than do those planning new businesses in Northern Ireland.
• The level of informal investment is now more pervasive in Ireland (2.6%) than in Northern Ireland (0.9%). Overall, however, the rate of informal investment activity on the island of Ireland (just over 2% of the adult population) is relatively low. In the US, the rate of ‘business angel’ activity among the adult population at 4.9% is nearly two and a half times higher than the rate on the island of Ireland.
• The formal venture capital market has developed significantly in both Ireland and Northern Ireland in recent years. Notwithstanding this, venture capital activity is less developed in Northern Ireland than in Ireland.
• In Ireland (46%) and in Northern Ireland (42%) the number of people who believe they have the skills to start a business is lower than it is in the US (54%).
• ‘Fear of failure’ would prevent four out of every ten people from starting a business in Ireland and in Northern Ireland compared to just half that number in the US.
• In Northern Ireland people lack role models, as a relatively low number of people know a recent entrepreneur (25%).
• The cultural context for entrepreneurship is particularly strong in Ireland. It is less well developed in Northern Ireland.

The higher entrepreneurial activity rate in Ireland compared to Northern Ireland arises because of much higher rates of participation in entrepreneurial activity among those with higher levels of education and among those under 45 years of age in Ireland compared to Northern Ireland.

The economic and demographic context is an important determinant of the level of entrepreneurial activity. Specifically, the high levels of entrepreneurial activity in Ireland may
be partly explained by the favourable economic environment of recent years, (for example high levels of growth in GDP and high levels of growth in employment) and the favourable demographics in Ireland, (for example, a growing population and a relatively high number of males within the age grouping that is the most entrepreneurial). Given the lower rate of economic growth experienced in Northern Ireland, compared to Ireland, in recent years, and the less favourable demographic context, it is not surprising that the rate of entrepreneurial activity has been lower in Northern Ireland.

A number of areas that policy makers on the island of Ireland need to address are highlighted. These are as follows:

• Increase the level of entrepreneurial activity.
• Maximise the entrepreneurial potential of all sections of the population.
• Harness the resources of the education and training sector.
• Increase the number of women active as entrepreneurs.
• Continuously monitor access and availability of finance.
• Increase the level of business angel activity.
• Monitor the cost of starting and operating a new business.
• Maximise the number of innovative and high growth new ventures.
• Support the development and exploitation of research.

There is benefit in designing and implementing some of the initiatives on an all-island basis. For example, networks of entrepreneurs and informal investors/business angels could be further developed on an all-island basis. Similarly, the sharing of experience and cooperation in the effective development of focused educational and training initiatives among teachers and educationalists would benefit from an all-island approach. Another common challenge is the effective commercialisation of R&D from the third level sector. Again the barriers are similar, and are being experienced in many developed economies. The challenge to coordinate policy initiatives in an effective manner is also highlighted.

Without doubt, policy makers and others interested in the development of entrepreneurship in both Ireland and Northern Ireland have much to learn from each other, as they strive to maximise the entrepreneurial potential of the people and develop a fully dynamic entrepreneurship environment on the island of Ireland. The authors of this first report, Entrepreneurship on the Island of Ireland, hope that their input makes a worthwhile contribution to the achievement of this challenging goal.

 

Notes

[1] An individual was considered to be a nascent entrepreneur if he/she fulfilled three conditions: (i) they had done something — taken some action — to create a new business in the last year; (ii) they expected to share ownership of the new firm; and (iii) the firm had not paid wages or salaries for more than three months.

[2] If the initiative had paid salaries and wages for more than three months but less than 42 months, its founder was classified as a new firm entrepreneur.

[3] The confidence limits for these TEA rates are as follows: Ireland ±1.17 (TEA 8.1%); Northern Ireland ±0.85 (TEA 5.2%). Therefore, we can be confident that the difference in the TEA rate reported here is statistically significant.