Online Resource for Business

A study from the European Commission has shown the benefits of internationalisation by small companies for the development of local economies.

The report “Internationalisation of European SMEs” maps the level of internationalisation of small firms in Europe and identifies the main barriers and advantages of the internationalisation process.

It found that:

• internationally-active SMEs report an employment growth of 7 per cent whereas the figure stood at 1 per cent for those without any international activities.
• there is also a strong relationship between internationalisation and innovation. 26 per cent of internationally active SMEs introduced products or services that were new for their sector in their country as compared to 8 per cent for other small businesses
• the sectors of activity with the highest share of exporting SMEs are mining (58 per cent), manufacturing (56 per cent), wholesale trade (54 per cent), research (54 per cent), sales of motor vehicles (53 per cent), renting (39 per cent) and transport and communication (39 per cent).
• only 16 per cent of SMEs are aware of public support programmes for internationalisation and only a small number of SMEs use public support.

The EU has also produced a document which proposes policy recommendations based on the situation, barriers and drivers for internationalisation as well as a good practice brochure that presents a collection of national and regional policies that tackle some of the main problems faced by SMEs in internationalisation.

One of the schemes that is recognised as good practice is the “First flight” programme run by Enterprise Ireland, which is aimed at helping companies who are new to exporting by assisting the company’s management team to develop an action plan for internationalisation. The critical aspect of the programme is that through mentoring and business support, it provides high value information that can be directly tailored for use by participating SMEs and is viewed as the first step to a long-term internationalisation and exporting strategy.

Such support schemes make a real difference to the success of small companies and it is easy to forget, in the discussion about the inward investment role of International Business Wales (IBW), that another key role undertaken by the organisation was in helping Welsh companies develop international strategies to help grow their business.

With the abolition of both IBW and FS4B (the business support arm of WAG), there will now be little support available for those businesses wishing to take the first step in developing their export potential. Focusing on six sectors, as WAG has done, is contrary to the call, by academic researchers in the field, for a more balanced policy support which takes into account the diversity of SMEs that operate, or are capable of operating, in foreign markets.

Given the recent dismal performance of Welsh companies when it comes to international trading activities, we need more, not less, businesses to export their goods and services around the World, especially given the potential impact on employment growth within the Welsh economy.

There has been some comment from on the last post regarding the Finnish Government’s latest approach to broadband.

Simply put, Finland has become the first country in the world to make broadband a legal right for all its citizens, entitling them to a one megabit per second broadband connection now, with a 100-Mbit/s connection to become a right by the end of 2015.

As a result, all Finns, including those living in sparsely-populated areas, will be connected to the internet with fast fibre-optic or cable networks by this target date. Therefore, the objective of the project is to ensure that nearly all (more than 99 per cent of the population) permanent places of residence and places of business and public administration are no further than two kilometres from a 100 Mbit/s fibre-optic or cable network.

In principle that sounds very similar to Wales but in practice, it is very different.

Unlike the proposals from WAG, telecommunication operators themselves are expected to construct fast connections in densely-populated areas, where there is demand, on market terms. Support will only be given to projects that are not commercially viable i.e. in raising population coverage from 95 per cent to 99 per cent in rural areas.

More relevantly, telecommunication operators will have to dip into their own pockets and cover at least 34 per cent of the costs. The rest of the costs will be funded by the State (66 million euros for the period 2009–2015), municipalities and the European Union’s Rural Development Fund (24.6 million euros).

Therefore, the difference is that

• telecommunications companies are being pushed by the Finnish government to cover the vast majority of the broadband extension within the country (which is why the project is probably costing less than half of the that to be spent by WAG)
• telecommunications companies are expected to put in their own cash of tens of millions of euros into the Finnish project, unlike the procurement exercise in Wales where WAG will pay for the whole project
• financial support for broadband from government and European funds will only be provided in those areas where there is no commercial viability
• other budgets critical to the economy, such as business support which are vital for getting the country out of recession, have not been “raided” to pay for this additional broadband funding

That seems to be a very different proposition to that put forward by WAG officials, as I have discussed in the previous posting.

Given this, I wonder if any WAG officials have been in touch with their Finnish counterparts to examine whether the key criteria for the Broadband 2015 project could be adopted for Wales?

It certainly seems to be better value for money, could cost far less than expected and could ensure that telecomms companies, which will benefit financially from the infrastructure investment, also pay their fair share of the project.

It may also mean that less funding would need to be diverted away from supporting small businesses in Wales.

There are clearly different models and technologies for delivering broadband to much of the country (e.g. read this article on Rory Stewart MP and his idea for broadband into rural Cumbria), not all of which necessarily involve government.

The question is whether WAG has thoroughly examined all the options before plumping for the easiest i.e. pay a large telecomm hundreds of millions of pounds to provide fibre across wales.

I would suspect they haven’t.

One of the key decisions of the Economic Renewal Programme (ERP) is the abolition of funding and support for the majority of small businesses in Wales. Instead, the savings made will go towards the £240 million required by the Welsh Assembly Government (WAG) to invest in a “next generation” broadband infrastructure for Wales by 2016.

Investment into critical new technologies can make a real difference to the productivity of businesses and there is certainly a case for extending the current broadband provision away from the main industrial urban and localities to the more deprived communities and those rural areas which still depend on dial up modems to access the internet.

However, the major weakness within the ERP is that the Welsh Assembly Government simply fails to make a coherent case as to why this is a better form of investment than supporting firms directly, and why government should fund this instead of the private sector.

Let’s start with the rationale that the investment in broadband will give a better return on public funds in terms of the number of jobs created.

One of the most critical reports on the role of broadband in economic development is “The UK’s Digital Road to Recovery” from the London School of Economics.  If we extrapolate from the employment generation data presented in the report, then it is estimated that a £240 million investment in next generation broadband would create or retain around 11,000 jobs in Wales for one year i.e. a cost of roughly £22,000 per job.

For those in government, the question is whether such an investment in economic development, which is what this programme is essentially about, represents real value for money. No case is made at all as to whether spending on next generation broadband will provide a better return as compared to other types of support that could be available to develop the economy, such as inward investment, start-up support or help for growth businesses.

For example, if business really wants better broadband, then simply making the £240 million available as a special repayable grant to all businesses in Wales that wish to invest in next generation broadband may be a far more effective method of spending public money.

The second issue is why should government subsidise such services at a time when telecommunications companies are increasing their investment in new technologies?

For example, BT has already announced in May that it will increase its plans for fibre-based fast broadband from 40 per cent to two-thirds of all UK homes, and this without any incentive from the UK Government.

In addition, other telecommunications businesses are coming up with innovations to extend their market share. Only last week, Virgin Media announced that it will trial ultrafast broadband over existing electricity poles in Caerphilly. If successful, this ‘non-traditional’ approach could significantly accelerate delivery of next generation broadband to millions of extra homes across the UK.

If the private sector is already expanding its broadband infrastructure, then why should the taxpayer subsidise such services? There is, of course, a clear argument to support those areas that are deemed “uneconomical” for further investment by telecomm companies. But surely, the whole point of investing in broadband to rural areas is to ensure that they do regenerate and create businesses that will utilise the technology in the future and pay companies such as BT for the privilege of doing so.

Given this, why on earth should government pay out what is essentially a grant to the telecomms providers to enable them to gain business from those new customers that they will gain as a result of the infrastructure investment by the taxpayer?

The analogy most used by politicians about broadband is that it is equivalent to building the motorways of the future.

Yet, the difference between roadbuilding and broadband and is that, unlike the former, the government is handing over these new information motorways, paid for by the public purse, to a group of  private sector firms that will then be charging “tolls” for businesses to use them.

Is that a fair and effective use of public money?

If the principle of the new ERP is to move away from the old style of grants, then why should WAG pay large telecoms companies to essentially extend their broadband networks across Wales and thus increase their profits.

Surely, the only logical way is to treat them the same as every other business in receipt of WAG funding and get them to repay the grant from the increased business they will gain once the networks are in place.

As I wrote last week, to abandon small business support as we come out of a recession and spend £240 million on broadband provision is either the biggest mistake in economic development history or an inspired vision for the Welsh economy.

Yet there seems to be little evidence for the latter conclusion in terms of the impact on job creation and the “value for money” in paying large private companies vast amounts of public money for broadband networks that they are expanding in any case.

Of course, this is not the first time that WAG has invested in such infrastructure having already spent £30 million on a fast broadband service called Fibrespeed in North Wales.

At the very least, one would have expected WAG to have undertaken a thorough evaluation to demonstrate the success of the take-up of this scheme, which is provided for businesses across the A55 in North Wales, before committing hundreds of millions of pounds of Assembly and European funding to expanding this programme across the rest of Wales.

Surely, in the absence of any other meaningful evidence for changing the whole direction of Welsh economic policy, it is the least that the Minister and his policy team can do to show those tens of thousands of small businesses that will no longer be backed by the Welsh Assembly Government that there is some method in this perceived madness.

All micro firms should be exempt from the automatic enrolment pension scheme due to come into force in 2012, the Federation of Small Businesses (FSB) said today.

Small businesses are set to be at the heart of the newly created local enterprise partnerships following a meeting between the Department of Communities and Local Government and the Federation of Small Businesses (FSB) earlier this week.