PRUEBAS DE RESISTENCIA A LA FLEXIÓN EN TRES PUNTOS

One of the alternatives to the standard theory limited by typical neoclassical assumptions comes from the strategic management literature suggesting a different way to support small businesses. The primary approach to strategic management in the 1980s was Porter’s (1980) competitive forces focusing on the defensive position of firms against competitive forces. Later, Shapiro (1989) extends this by looking at market imperfections, entry deterrence and strategic interactions. On the side of this, others (Penrose, 1959; Rumelt, 1984; Teece et al., 1995) have introduced resource-based perspective, claiming that the firm’s capabilities, assets, and mechanisms create competitive advantage.

A new stream of the literature has emerged starting with Teece (Teece and Pisano, 1994; TEECE et al., 2008; Teece, 2014). It is defined by Helfat et al. (2007:4) as “the capacity

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of an organisation to purposefully create, extend, or modify its resource base.” The main idea of this stream of the literature is that many firms operate in dynamic environments where entrepreneurship, technological innovation and global competition are likely to occur (Schreyögg and Sydow, 2010). To overcome this environment, firms develop dynamic capabilities. Strategic management is studied to explain how firms evolve in changing environments and how they sustain a competitive advantage. Researchers often take Teece’s et al. (1997) view that dynamic capabilities comprise of the following routines: sensing, coordinating, learning, integrating, and reconfiguring. The alternative is proposed by Eisenhardt and Martin (2000), who argue that dynamic capabilities are “best practice” across the industry. This will be not considered in this thesis as it is unlikely that SBRR could have any influence on the best practice within the industry as it is given irrespective of the industry involved.

Many academics have published various literature reviews on dynamic capabilities that form a basis for this discussion. Wang and Ahmed (2007) provide an overview of general dynamic capabilities theory. Inan and Bititci (2015) focus on the context of micro enterprises. Wilson and Kevill (2017) look at dynamic capabilities theory from the rural microenterprise perspective. Using literature from these and other reviews, the following paragraphs discuss organisational and dynamic capabilities.

The primary definition of organisational capabilities is a capacity to organise its resources, intangible or tangible, to complete an activity or task to improve performance (Grant, 1991; Amit and Schoemaker, 1993; Teece and Pisano, 1994; Helfat and Peteraf, 2003). Operational capabilities literature contains an array of management tools and practices which are applied at larger firms and adapted to SMEs, such as customer relationships management (CRM), Just-In-Time (JIT), total quality management (TQM), continues improvement (CI), lean production (LP) and totally productive management (TPM).

However, these theories may differ for the micro firms (Devins et al., 2005; Kelliher and Reinl, 2009; Matlay, 1999) or businesses in rural areas (Wilson and Kevill, 2017) that are expected to be the greatest proportion of SBRR recipients. Due to their size and resources, the firms may be incapable of implementing previously mentioned practices. Teece (2014) guides that organisational routines are at the heart of dynamic capabilities. However, when focusing on small enterprises, the standard framework (Teece et al., 1997; Teece, 2007) may not be applicable because in such a setting, decisions are often not taken by the group of managers but by owners (Blackburn et al., 2013). The attitude of the owners should have a far greater impact on the firm’s performance than for the larger organisations

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(Faherty and Stephens, 2016). A study by Jayawarna et al. (2014:282) shows that there are two ways to increased entrepreneurship. One results from a lack of job opportunities or insufficient skills to secure a job. Arguably, these individuals would not always be capable of improving their operational capabilities.

ONS (2013) estimates that over 85% of UK land is considered to be rural (ONS, 2013). It is important to consider this because rural commercial buildings tend to have lower values, thus are more likely to receive the reliefs. Wilson and Kevill (2017) suggest that rural entrepreneurs face more challenges than their urban counterparts. These comprise, but are not limited to, poor access to broadband, weak transport infrastructure, lengthy commuting for workers, a lack of specialist access to finance and business support (Galloway, 2007; Steinerowski and Steinerowska-Streb, 2012; Warren-Smith, 2014). It is reasonable to question whether unqualified entrepreneurs experiencing so many barriers would be capable of employing its resources, intangible or tangible, to perform an activity or task to enhance performance.

On the other hand, Wilson and Kevill (2017) speculate that firms would be investing the money from the relief in developing dynamic capabilities even in the rural economy. They argue that it is profitable for companies to invest in dynamic capabilities. This seems to complement the theory for larger organisations driven by competition, globalisation and technological development (Helfat and Peteraf, 2009). Thus, firms receiving SBRR would be likely to increase their investment to gain a competitive advantage.

From the discussion above, it is evident that management is a key within the small firm. The general theory would imply that government should directly help to enhance their dynamic capabilities, for example, by supporting broadband or infrastructure projects instead of SBRR. The direct capital gained through the relief could help to overcome liquidity constraints but not increase the dynamic capabilities because building and land are generic rather than a source of dynamic capabilities. However, it may be a resource that businesses command - so dynamic capability may lead them to use their space more efficiently by enhancing productivity. Even though this may be the case, due to the high likelihood of SBRR capitalisation into rents, programmes such as innovation grant schemes would be more beneficial. More specifically, in the context of micro firms, it seems evident that the primary focus should be on the decision maker, therefore a business owner. Then, incentives to undergo training would be a slighly better way to enhance dynamic capabilities within a small firm.

67 2.2.3 Implications for the Framework

Governments can introduce shocks and distortions to the flat tax through the introduction of loosely targeted reductions, like SBRR. The SBRR23_{, depending on the nation}

and period, reduces the tax obligation in either steps by a given per cent or by setting a maximum tax reduction, which then tapers linearly. For example, in England, for the period 2010-17 the 100% threshold was up to £6,000 rateable value, after which it tapered to zero at £12,000. All these frictions may reduce the proportion and increase the time over which shocks capitalise, consequently creating a period in which SBRR could influence productivity and survival decisions.

More broadly, the macro economic models suggest that SBRR should not impact the economy as it just redistributes the tax. However, they also advise that market share may be taken by potentially less efficient firms receiving SBRR at least in the short term. This section also explained the most fundamental reasons why government would want to support businesses occupying small premises. These are mainly related to the market failure, equity and externalities introduced either by the tax or the relief. If there were some negative externalities introduced by BRs, these would hopefully be offset by the positive externalities from SBRR, but it is unlikely because of mistargeting.

The discussion revealed that SBRR might not be an ideal way to achieve the government’s aim “to target help at genuinely small businesses” (Scottish Executive, 2004:1)24_{. It is apparent that some aspects of the possible market failure may be reduced}

by the relief, such as monopolies or negative externalities. It is unclear whether this relief addresses the ability-to-pay principle or supports underperforming firms. Although evidence has shown that small firms contribute to employment, GDP and wealth (Section 4.7.2), the standard economic theory suggests that by targeting small businesses without any rationale, the government might further reduce market efficiency (Section 2.2.2). It seems apparent that alternative support incentives could provide better value to the UK government (Section 2.2.2.3).

The macro economic literature in this section helps to further enhance the framework in several directions. It asks to extend the debate introduced in the previous

23 _{The Scottish systems does not taper, but has specific, more generous and increasing}

reliefs within bands. Wales used a simpler framework before 2010 when it aligned with the English SBRR. In England between 2005 and 2010 the relief was 50% for firms with rateable values below £5,000, tapering to zero by £10,000. See the Introduction and Background Chapter (Section 1.4.3) for more detail.

24 _{This aim was not included in the policy papers but written in a booklet describing SBRR}

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section on demand. Markets operate together, so both recipients and non-recipients are inter-related and can be affected by the SBRR. The distributional effects discussed in Section 10.1 show that vulnerable firms may have even more difficulties when their property receives the relief, as pointed by Hilber (2017) in case of overcapitalisation or other negative externalities. These mechanisms are introduced in Section 2.2.1.2. By considering their ability to pay and providing relief, the government may push landlords to increase rents. However, in the short term, the market is unlikely to be fully competitive.

Thus, Section 2.2 has not merely explored the primary reasons why the government may consider supporting small firms with tax reliefs, but also further strengthened the framework by suggesting possible scenarios during short, medium and long terms that were adopted in the Framework.

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