Regulation and small business growth: Case studies from North West England See discussions, stats, and author profiles for this publication at: https://www.researchgate.net/publication/326629611 REGULATION AND SMALL BUSINESS GROWTH: CASE STUDIES FROM NORTH WEST ENGLAND BEIS Research Paper Number 11 Technical Report · May 2018 CITATION 1 READS 1,545 3 authors: Some of the authors of this publication are also working on these related projects: Community resilience to flooding View project Frank Peck University of Cumbria 77 PUBLICATIONS 369 CITATIONS SEE PROFILE Gail Mulvey University of Cumbria 52 PUBLICATIONS 44 CITATIONS SEE PROFILE Keith Jackson Thomas Jardine & Co 8 PUBLICATIONS 61 CITATIONS SEE PROFILE All content following this page was uploaded by Gail Mulvey on 26 July 2018. 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Thanks are also due to academics and policymakers who provided valuable feedback on a draft of this research presented at the BIS Internal Conference “Academic Papers on Better Regulation” held on 15th April 2015. The presentation of data and interpretations of interviews remain those of the authors. University of Cumbria Frank Peck Gail Mulvey Keith Jackson The final version of this paper was submitted by the authors in September 2015 and reflects research and policy as at that time. Department for Business, Energy and Industrial Strategy 1 Victoria Street London SW1H 0ET www.gov.uk/beis BEIS Research Paper Number 11 http://www.gov.uk/beis 3 Contents Executive summary _________________________________________________________ 4 1. Introduction _____________________________________________________________ 6 Aims and objectives _______________________________________________________ 6 Approach to study _________________________________________________________ 6 2. Growth, business performance and regulation ___________________________________ 8 International context _______________________________________________________ 8 UK national context_______________________________________________________ 10 Summary ______________________________________________________________ 13 3. Regulation and growth SMBs _______________________________________________ 14 Selection of case study firms _______________________________________________ 14 Growth and development in the case study firms ________________________________ 15 Business growth and the regulatory environment ________________________________ 17 Adjusting business growth plans due to regulation _______________________________ 22 Regulation and tipping points in the growth process _____________________________ 24 Businesses’ awareness of regulations ________________________________________ 28 Business perceptions of regulation ___________________________________________ 33 4. Conclusion _____________________________________________________________ 36 Main findings from case studies _____________________________________________ 36 Implications of findings for future work ________________________________________ 40 Appendix A _______________________________________________________________ 41 References _______________________________________________________________ 43 Regulation and small business growth: Case studies from North West England 4 Executive summary The aim of this study is to examine the impacts of regulation on growth-oriented small and micro-businesses (SMBs). These are businesses with fewer than 50 workers. The approach to the study involves eight case studies of SMBs operating in the North West region of England. The cases cover a variety of sectors including manufacturing, wholesale supply, business services and tourism accommodation. What they have in common, however, is experience of recent growth and evidence of innovation. Owner-managers are well aware of the costs associated with compliance with regulation. While these burdens are acknowledged, however, it became clear during discussions that the benefits of regulation are also recognised. Interviewees accepted that many aspects of compliance are consistent with achieving business objectives. There is recognition that regulations are important for fairness and protection of product-markets. As regards business growth plans, it appears that these growth-oriented firms are not only innovative in developing products and markets but they are also pro-active in finding better ways to address regulatory challenges. The case studies show examples of owner-managers becoming more systematic about compliance, proactive in their learning and strategic in their use of regulatory knowledge as part of the growth process. Interviewees were asked whether regulation had caused them to adjust or scale back growth plans. In half the cases, regulation was not regarded as a major barrier to growth nor a significant reason to adjust plans. In other cases, however, growth plans had been adjusted to meet regulatory requirements though this was not viewed negatively. In three cases, it was argued that business growth plans exist because of regulations, not in spite of them. Our case studies include examples where regulatory burdens on the owner-manager become sufficiently intense to prompt changes in the way in which HR issues are addressed. This “tipping point” has induced various business responses such as redistribution of management responsibilities, buying in external help, decisions to invest in staff training and recruit new staff. Interviewees rarely rely solely on formal channels of communication (e.g. Industry bodies, government websites) as a means of learning about regulation. Owner-managers also adopt routines and behaviours that enable them to learn from clients, suppliers, customers and other businesses as well as external advisors. Interviewees also adopt strategies to deal with the volume of information available (of variable reliability) that is associated with regulation. Some indicated that industry standards are sometimes used as a proxy for compliance on the assumption that industry standards will be robust. In another case, the interviewee argued that customers are more severe critics than regulators, hence if customers are content and not harmed, it is likely that the business is compliant at least in terms of health & safety and trading standards. In some cases, there is a perception that public sector bodies demand and record information that is non-essential. While some of these demands reflect regulation, there is a perception that additional non-regulatory practices and policies create unnecessary burden. Several owner-managers recognised that understanding regulation is often not sufficient; there is also a need to understand how rules are interpreted and applied. This requires knowledge of Regulation and small business growth: Case studies from North West England 5 the context for regulation and the perspectives of those who administer systems. Stakeholder engagement is therefore a significant strategic response particularly for businesses whose markets are strongly regulated. These owner-managers adopt highly pro-active approaches to regulatory learning. For these owner-managers, the time required to keep informed about new regulation and then implementing changes in systems in response was regarded as the source of greatest burden. This impinges on the perceptions of SMB owners because it impacts on their own personal time. While management time is a key issue for these businesses, the discussions also encompassed comments about fairness and feelings of frustration and anxiety associated with what is perceived to be a lack of a level playing field for smaller businesses. Several interviewees argued that sometimes regulations are not enforced adequately, or they are applied inconsistently to the disadvantage of small businesses that seek to grow by offering high quality products and services. Overall, the findings suggest the following: • Regulation does generate costs but significant benefits are also recognised including the creation and protection of market opportunities. • For fast growing SMBs, one of the main burdens cited was the time required to comply with Employment Law. • Case studies suggest that consistent enforcement is highly desirable to create a level playing field and avoid uncertainty for growth-oriented businesses. • Regulation did not appear to hamper growth systematically but rather had the effect of channelled growth in particular directions. • While regulation can affect growth, the reverse is also true. Growth firms can become more proactive towards regulation and more aware of the business benefits of regulation. Regulation and small business growth: Case studies from North West England 6 1. Introduction Aims and objectives The relationship between regulation and economic growth has been the focus of considerable discussion in academia and policymaking over the past decade. These debates have taken place at a variety of spatial scales from the international arena, to the national context and also in regional and local economies within the UK. A prominent theme in these discussions has been the extent to which the regulatory environment affects business growth and innovation and, in particular, whether regulations place unnecessary burdens on businesses which impede growth plans particularly for smaller businesses that lack capacity to respond to administrative requirements. The aim of this research is to examine the impacts of regulation specifically on growth-oriented small and micro-businesses (SMBs which are businesses with less than 50 employees). In this context, the objectives are as follows: a) To examine the extent to which growth-oriented SMBs are impacted disproportionately by regulatory changes b) To ascertain how growth-oriented SMBs find out about regulatory requirements associated with their expansion plans c) To show the extent to which SMBs might adjust their plans or develop coping strategies to address regulatory concerns d) To consider the implications of the findings for policy and further research Approach to study The approach to the study involves a selected number of case studies of small and micro businesses (SMBs) operating in the North West region of England. The case studies are guided by a review of recent relevant literature that concerns the relationship between regulation, business growth and entrepreneurship. The review of literature focuses in particular on recent studies that seek to demonstrate how growth-oriented small and micro-businesses engage with regulatory systems in general and in the context of specific growth plans. Eight case studies have been identified through current University of Cumbria Business School projects that involve collaboration with innovative small businesses across the North West region. The case studies cover a range of sectors and types of products and services. Selection of cases, however, involved identifying firms that shared common characteristics in relation to experience of business growth. The eight businesses are all proactive in seeking new market opportunities and innovative in terms of product development and/or business process. As a consequence, it was anticipated that these businesses will have experienced new regulatory challenges inherent in these processes of change. Interest lies in documenting how growth plans are influenced by the regulatory environment. Section 2 contains the literature review which is followed by the empirical work undertaken. The case studies are based on interviews with owner-managers structured around the interview schedule contained in Appendix A. Regulation and small business growth: Case studies from North West England 7 The interviews covered the following broad themes: • Background of the interviewee and the current business • Recent growth and development • Impact of the regulatory environment • Awareness of regulatory requirements • Effects of regulations on growth plans