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Whichever theory is correct, it would appear that those areas most in need of economic development are those least likely to generate new firms or viable small businesses since they are still struggling to put structures in place and to create conducive environment for entrepreneurial activities to thrive. (Johnstone and Kirby, 1999).

3.2.3 The Rate of New Business Formation

Traditionally, it is believed that new firm formation is highest in periods of economic recession. This is because, naturally, people are pushed into self-employment as an alternative to unemployment. Certainly this was true in the United Kingdom in the 1930s during the period of the Great Depression. However, research by Keeble (1993) suggests that this was not the case in the 1980s. During that decade in the UK, unemployment was falling and new firm formation rates were rising, suggesting that new businesses were being created in response to the improving market conditions and opportunities. This ignores the influence of government policy and the major efforts during the decade not only to raise awareness of the opportunities self-employment affords but to encourage business start-ups. Inevitably, with the increase in self-employment over the decade the unemployment rate fell. Thus, it is generally believed that there is a positive correlation between the rate of new business formation and the level of unemployment in the economy. This situation holds true for both developed and developing economies.

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actually increased by 59%. By 1991, approximately 12% of the total workforce was self-employed compared with 9% in 1981. The numbers entering self-employment appear to vary by gender, age, marital status, ethnic origin and level of education. We will now look at each of these factors in turn.

3.3.1. Gender

Traditionally, males constitute a significantly greater proportion of the self-employed sector than females. In the United States, the proportion of female-owned businesses is only in the order of 33% of the total. However, in Britain, female self-employment has grown rapidly in recent years and continues to do so. In the developing nations such as Nigeria and Ghana, female self-employment is also growing significantly especially in the area of food-stuff marketing, and dealing in jewelry and clothing.

Age

Self-employment appears to become increasingly inviting when one is at the middle age, when the potential entrepreneur can afford the start-up costs of a new venture. If redundancy or early retirement occurs, the entrepreneur already has experience to identify opportunities or ways of doing things better. Indeed, a recent survey of 600 British most successful businessmen reveals that they are young people with the average age of 45.

3.3.2 Marital Status

Self-employment is much less likely for single people than it is for people in other categories (married, widowed, divorced or separated). In part, this reflects the fact that people below the age of 25 are less likely to be married than those in the older age categories. However, it does seem that marriage provides the support necessary to establish a successful new venture, and spouses are often partners in such enterprises.

3.3.3 Business Growth

According to the UK Committee on Inquiry on Small Firms conducted in 1971, small firms provide the means of entry into business for new entrepreneurial talent and the seed-bed from which new large companies will grow to challenge and stimulate the established leaders.

While very little research has been undertaken to support or refute this statement, there is evidence in retail business in support of the claim.

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However, it is known that very few new small businesses do grow. And, as has been shown, many do not survive either. Of those that survive, only a very small number actually grow, and Storey (1993) has suggested that three groups of small firms can be identified. These three groups are; the “failures”, the “trundlers” and the “fliers”. The fliers are the growth firms while the trundlers are the firms not doing too well

There are numerous reasons why new ventures are not able to grow very rapidly. Barber (1989) suggested that the literature on the barriers to growth can be classified under three headings as follows: (1) management and motivation, (2) market opportunities, and (3) structure. However, more recent work by the Cambridge Small Business Research Centre (1992) pointed to financial constraints, the level of demand in the economy and the nature of competition as the barriers to business growth. The study concluded that external factors are more significant barriers to growth than the internal factors, such as managerial skills or the availability of skilled labour.

4.0 CONCLUSION

While the barriers to growth of small businesses are known, the precise catalysts for growth are not known. Considerable descriptive research has been carried out into this area and it is known, for example, that growth firms are younger and smaller than non-growth firms. They are more likely to be limited companies (rather than sole traders or partnerships) and tend to be located in accessible rural areas rather than urban centres.

Equally, they are likely to be owned by individuals who share equity with external individuals or organizations, and who are prepared to devolve decisions to non-owning managers, to occupy particular niches or segments where they can exploit any quality advantages they may have and to be innovative.

Clearly, the fact that so few new ventures grow restricts the contribution they make to the job generation and economic recovery processes. Equally, it minimizes the seed-bed effect and has led to suggestion that, perhaps, a more selective approach should be taken towards new venture creation whereby the winners are picked out at birth for special attention and nurturing. If management is crucial to both survival an growth, it is probable that with appropriate managerial support many more businesses would make a more significant contribution. Rather than attempting to pick out the seeds that are worthy of more favoured attention, perhaps the conditions for growth need to be improved.

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5.0 SUMMARY

Traditionally, it is the general believe that the formation of new firms is highest in periods of economic recession. This is because, naturally, people are pushed into self-employment as an alternative to unself-employment. Certainly this was true in the United Kingdom in the 1930s, the period of the Great Depression. However, further research suggests that this was not the case in the 1980s. During that decade, unemployment was falling and new firm formation rates were rising, suggesting that new businesses were being created in response to the improving market conditions and opportunities. This ignores the influence of government policy and the major efforts during the decade not only to raise awareness of the opportunities self-employment affords but to encourage business start-ups. Inevitably, with the increase in self-employment over the decade the unemployment rate fell.

6.0 TUTOR-MARKED ASSIGNMENT

* What are the advantages of new business formation to the economy of a nation?

* How does the skills and savvy of the entrepreneurs affect the growth and survival of their business?

7.0 REFERENCES/FURTHER READING

Barber, J, and Porteus, M. (1989). Barriers to growth in Small Firms, London, Routledge.

Boumol, W.J. (1999). Entrepreneurship in Economic Theory. American Economic Review: Papers and proceedings, 58.

Birch, D.L. (1987). Job Creation in America: How our Smallest Companies put the Most People to Work, New York: Free Press.

Wickham, P.A. (1998). Strategic Entrepreneurship: A Decision-making Approach to New Venture Creation and Management, London: Pitman Publishing.

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UNIT 2: ROLE OF SUPPORT INSTITUTIONS IN ENTREPRENEUSHIP