The UK post-recession economy - Research Paper Example

An analysis of entrepreneurial theory and its relevancy to the UK post-recession economy Introduction Between the years 2008 and 2010, the United Kingdom experienced a double-dip recession that dramatically impacted the economic stability of the country. It is alleged that the recession began in the United States due to practices of large banks providing variable rate mortgage loans to consumers, which by 2006 had encompassed 20 percent of all U.S. home loans (Simkovic 2011). Concurrently, risky investor behaviours in the capital market, an improper federal regulatory environment, and the growing trend of investment firms offering credit default swaps had a trickle-down effect on the UK economy. Today, however, as a result of new regulations and international cooperation to stabilise global and domestic banks, the UK is emerging from this recession. After the UK government spent well over £62 billion to provide banks with new capital infusions in exchange for a long-term equity stake in these banks (Simpson 2009), the UK improved the majority of its economic weaknesses. In the UK, the average pay provided to business employees is set to exceed the current inflation rate in the country (Allen 2014) with unemployment levels dropping as a result of new employment opportunities opening in the country. The current UK economic environment is now conducive to growth, promoting those with true entrepreneurial spirit and perseverance to launch new businesses. Today, genuine entrepreneurs are recognising new opportunities, creating an innovative business concept to grasp these opportunities, and are more willing to risk their own personal financial capital to seize new wealth-generating prospects. These are characteristics of a bona fide entrepreneur (Bygrave and Minniti 2000). Now that the UK economic environment is more favourable to entrepreneurs, with better access to credit and loans and rising consumer incomes, a current or prospective entrepreneur maintains a plethora of new market opportunities if they can envision an innovation or new idea and bring these concepts to fruition. This essay explores the characteristics and attributes of an entrepreneur, examining different theoretical positions about what constitutes entrepreneurial activity and behaviour. Once identifying these characteristics, the essay utilises various examples of how such activities relate to the UK emerging from a recession environment. The essay explores aspects of entrepreneurial features including opportunity spotting, risk and innovation characteristics and how such activities could impact entrepreneurial venture success in the current UK economy. Opportunity spotting Opportunity spotting, as an aspect of theoretical entrepreneurial behaviour, is known as a type of altertness, a schemata giving an entrepreneur the unique ability to create meaning to various market changes that is not achievable with other managers in the business world (Valliere 2013). Such inherent alertness theoretically gives a real entrepreneur that ability to recognise new opportunities where others in society and the business world do not (Valliere). For instance, an entrepreneur may gain access to important statistics about new trends in consumer behaviour and then determine that their business can be adjusted to better service these trends in a fashion that is innovative and creative, whilst also being designed to satisfy consumer needs in a way not considered by competing companies in an established market. Opportunity spotting, in general, is related to the ability of a theoretical entrepreneur to recognise new market openings or chances to develop a superior business model that can bring a firm greater profitability and competitive advantages by making small-scale or large changes to an existing entrepreneurial venture’s business model. For instance, today’s consumer emerging from the UK recession is more prudent about their financial spending, trending towards values associated with frugality (Kasriel-Alexander 2013). Consumers in the UK are more concerned about accruing further debt load and are seeking perceived value as it relates to their consumption decisions as a result of enduring through a difficult recession. In such a situation, an entrepreneur maintaining alertness would spot an opportunity to outperform competition. For example, the business world can consider an entrepreneurial venture that, prior to the recession, provided consumers with gourmet pizzas that had been priced under a premium pricing structure as a result of using quality ingredients and using advertising to express these unique products as being superior to competition such as Pizza Hut. With a more frugal post-recession buyer segment, the entrepreneur can begin offering lower-priced products (a value menu conception) that captures new, price-sensitive markets to the business model to offset revenue shrinkage from a retracting premium consumer segment. Opportunity spotting is aligned with environmental scanning, or conducting industry analyses that focus on economic conditions and social trends (Jeffs 2008; Baum, Locke and Smith 2001). From a theoretical perspective, a diligent entrepreneur has examined risks associated with consumer spending retraction and a desire to find more financial value in their purchases. As a result, he or she would theoretically consider opening new supplier vendor contracts to procure less quality ingredients, how to structure the production model to support new and lower-cost products, and redevelop the firm’s integrated marketing communications to attract new markets. The Ansoff Matrix asserts the validity of such a strategy, where competitive advantages can be achieved through diversification, or the process of offering new products for new markets (Thompson, Gamble and Strickland 2005). Whilst other competing small and large-sized pizza restaurants, without inherent abilities to spot opportunities, begin cutting staff levels to save costs during a period of diminishing demand, the opportunity-spotting entrepreneur creates a new, lower-priced product to ensure greater revenues and improve demand with once-unconsidered price-sensitive markets. This concept, requiring moderate modifications to the business model, not only provides the business with new sales opportunities, but assists in economic development for the UK by being successful through operational adjustments designed to better satisfy a value-conscious consumer segment. Chwolka and Raith (2011) assert that many entrepreneurial businesses achieve failures due to the fact that an entrepreneur does not consider all problems that are being created by their established business models. Offering only high-priced, premium pizzas in an environment where consumers are scaling back purchases and are more concerned with thrifty consumption would be a significant oversight for a firm and not necessarily representative of genuine entrepreneurial behaviour. By offering a more diverse, and differentially-priced variety of products, now the premium customer, the price-sensitive customer, or even those that simply do not wish to buy top quality foods items might find this business model more relevant and aligned to their lifestyle needs and ambitions. From another perspective, an opportunity spotting entrepreneur might conduct a consumer market analysis and realise that many of today’s consumers are seeking private-label products over major brand names because they are priced significantly lower and are often of the same quality as name brand products (Steenkamp, van Heerde and Geyskens 2010). Prior to the recession, consumers maintained considerable doubt about the quality of private label food products and felt that consuming them, as compared to name brands, was a very risky decision (Sudhir and Talukdar 2004). One might consider, then, a diligent opportunity-spotting manager that recognises post-recession consumers in the UK as it pertains to more interest in lower-priced private label products. A fledgling entrepreneurial firm producing, for instance, food seasoning products for commercial businesses could begin pursuing new distribution strategies and agreements with food retailers to carry the business’ products as private label, generic consumer-centric goods. Such efforts would open new market opportunities that gives consumers a choice over premium seasoning products with recognised brand names and higher prices. The thriftier consumer as a result of the UK recession would likely be attracted to products priced 20 to 30 percent below name brands. Rather than simply supplying commercial businesses, now the opportunity-spotting entrepreneur can compete in major supermarkets and hypermarkets across the UK if retail agreements can be constructed effectively. Retailers like carrying private-label products as they tend to boost profitability in today’s consumer environment. Hisrich and Peters (2002) state that legitimate entrepreneurial behaviours include the ability to create new market opportunities and create a valuable product in the minds of consumers. Therefore, it can be debated that the UK post-recession economy provides many opportunities for diligent entrepreneurs to improve the financial and competitive positions of their firms. Even though a thriftier consumer would likely be seen by non-entrepreneurial managers as a significant disadvantage for the firm, the theoretical entrepreneur would consider how to make external market factors work effectively for the firm. Even though such conditions might require some level of operational adjustment or financial capital expenditure to open new markets, the long-term benefits of greater revenue growth and creating new demand could have substantial benefits for an entrepreneur in relation to the food seasonings opportunity. Risk taking Theoretical literature on entrepreneurship defines the characteristics of a successful entrepreneur as inclusive of willingness to take risks (Korunka, Frank, Lugler and Mugler 2003). Risk-taking is how an entrepreneur might perceive the probably of gaining rewards associated with an entrepreneurial strategy in an environment where there is some level of possibility of failure for taking a specific course of action (Cromie 2000). However, is risk-taking a legitimate aspect of entrepreneurial behaviour? Brockhaus (1980) conducted an empirical study that recruited both self-proclaimed entrepreneurs and general business managers. Using Analysis of Variance procedures based on returned surveys, Brockhaus found that risk-taking behaviours were relatively similar between entrepreneurs and non-entrepreneurs. Eight years later, Masters and Meier (1988) recruited a similar sample of entrepreneurs versus general business managers and found no significant difference in risk-taking behaviours. Hence, it can be debated whether risk-taking, in a post-recession UK environment, will really provide an entrepreneur with advantages over that of general business managers. One can consider a potential scenario in which an entrepreneur that provides fashion accessories in a small, bricks-and-mortar independent retail store. In the post-recession environment, as a result of a more thrifty consumer profile, the company has witnessed substantial loss of patronage and consumer interest. This hypothetical small business cannot afford to lower prices due to high operational and supply chain costs and is having difficulty competing with such companies as Zara and Next that provide affordable fashions and accessories to male and female markets. In an environment where this accessories small business is facing complete failure, the entrepreneur must determine a competitive strategy that will gain consumer interest and allow the business to effectively compete against retailers in a post-recession environment where pricing is a major consideration. After evaluating all market conditions, the entrepreneur determines that a new procurement model should be developed to establish a supply chain network in China, which will theoretically provide top quality merchandise at a much lower procurement price as a result of less-expensive labourers and a substantially-positive exchange rate between the British Pound Sterling and the Chinese Yuan. This will allow the business to offer more price promotions to attract cost-sensitive buyers in the UK and use pricing as a competitive strategy. Will such a risk pay off for the entrepreneur? Dawes (2004) asserts that price promotions are highly successful and are often an indicator to consumers of product quality. Therefore, a theoretical entrepreneur, equipped with this knowledge, determines that Chinese procurement, rather than domestic procurement, can lead to better competitive power in the post-recession UK fashion market. The problem, however, is that in this environment, consumers are turning more toward digital consumption in fashion merchandise as a result of growing subscribership in smartphones and other Internet-capable mobile devices. Marks and Spencer, a major and well-recognised UK fashion retailer, experienced 16 percent growth in Internet sales in 2013 (BBC News 2013). Hence, the risk-taking entrepreneur begins complete redevelopment of many aspects of the firm’s value chain, procures appropriate loans and credit for international logistical changes to the business model, and begins offering foreign-made merchandise with recurring price promotions to attract multiple price-sensitive buyers. However, this entrepreneur did not take into consideration the trend of online consumption and does not maintain the human capital or financial capital necessary to create a well-developed and competitive online procurement model. As a result, consumers turn toward larger competitors with low-cost fashion merchandise and the entrepreneurial venture is forced to shut its doors. A recognised and respected business theorist asserts that over 80 percent of every problem that occurs at a business can be attributed to lack of managerial capability and oversight (Deming 2002). Whilst the risk-taking entrepreneur believed he or she was taking appropriate steps to align the business in a different fashion to meet the needs of the post-recession buyer, they did not consider other market trends of online consumption that were more potent and relevant to today’s customer segments. The firm was willing to risk personal and loan-generated capital toward a radical procurement strategy, but hypothetically failed to create a viable competitive model necessary to achieve revenue growth. It was necessary to debate the notion of entrepreneurial behaviour as a characteristic of risk-taking activity as it would appear to be unrealistic to assume that all risky decisions are going to meet with guaranteed success. In the post-recession UK environment, it seems to be the consumer that maintains the most control, capable of high bargaining power in the market and able to experience low switching costs to defect to other retailers with better pricing structures or perceived superior quality. A manager willing to risk a vast amount of their financial capital toward a new business model adjustment or new value chain ideology might, theoretically, overlook important market factors that will make new strategies ultimately unsuccessful when put into implementation. In the example provided of a risk-taking entrepreneur willing to invest considerable effort and finance into a radical redevelopment of the business model met with substantial failure. Therefore, should it just be blindly accepted that true entrepreneurial behaviour is characterised by risk-taking willingness? In the post-recession UK environment, where changing consumption trends, social attitudes, and competitive rivalry tactics are changing, does an entrepreneur need to be more diligent and rely more on quantitative data when making decisions rather than assuming a new strategic decision will meet with success and make a risky decision? Weintraub (2013) describes one entrepreneurial experience with a female entrepreneur who, whilst in college, created a flower of the week club business model that delivered fresh flowers to customers every week. Having established a viable procurement and logistical model, the company ultimately went out of business. The reason: the company had only managed to find 32 different customers and the business’ largest customer, a real estate broker, had been taking deliveries for nearly a year and had not paid their bill in nine months (Weintraub). In this situation, the entrepreneur was willing to take risks that this business model would achieve success and growth, but failed to recognise what might occur when a large and potentially-profitable customer refuses to make restitution for services rendered. It is likely that in the post-recession consumer environment, where customers are now concerned about incurring higher debt load, that such a situation could be a reality for a small business entrepreneur. Is it feasible that all potential risks can be identified and contingencies developed to insulate the entrepreneurial venture from failure? It was necessary when examining the relevancy of risk-taking as a legitimate entrepreneurial behaviour to debate both sides of the argument. Empirical studies indicate that true entrepreneurial behaviour is not necessarily a characteristic of an entrepreneur and other theorists assert that risk-taking is a primary attribute of entrepreneurial action. In a UK environment where there are still uncertainties and debates about potential market opportunities and consumer behaviour trends, it might be unrealistic to simply accept that risk-taking is a key success factor for entrepreneurs. In the aforementioned scenario of the UK small business fashion accessories retailer that procured products from China, but failed as a result of web-based purchasing trends, the entrepreneur assumed this significant risk, but failed to understand all external market conditions that would impact the success of this strategy. In the post-recession UK market environment, it might be more prudent to assume that some level of risk-taking propensity is necessary to be a true entrepreneur, when supplementary to examination of feasibility studies, longitudinal market research studies, and proper environmental/competitive scanning to identify solid and feasible contingencies in the event that a risky strategic decision does not meet with intended results. Innovation Innovation is defined as the development and launch of new business solutions that are capable of filling gaps related to satisfying consumers and their needs and the ability to respond to changing marketing conditions in a way not accomplished by other competitors. Any idea or concept that is completely distinct can provide an opportunity to displace an existing market and provide advantages to this pioneering business (Frankelius 2009). Innovation is often heralded as being a success factor for entrepreneurship and the innovative features of new and creative services and products improve the economic condition of society as a result of innovative features of these goods and services (Hussein, et al. 2011). Through R&D and creative thinking, a theoretical entrepreneur can create a new venture that provides consumers with innovative products or services that gain favour toward the pioneering entrepreneurial venture and contribute to national economic growth. To illustrate how entrepreneurial innovations increase consumer demand, an example of growing consumer expectations for mobile payment options can be explored. According to Moore (2014), 80 percent of today’s small businesses do not have mobile payment options available to consumers, which ignores a demand for this innovation related to needs for transaction and lifestyle simplification. This could be leading to what is driving consumers toward retailer online business models as they can now purchase products using mobile devices, as aforementioned in this essay. If society is to assume that innovation is a key predictor of competitive advantage and success of an entrepreneurial venture, then why entrepreneurial firms are not responding to these market demands is uncertain. Statistics indicate that 5.7 million mobile payment transactions occur in the UK every day using smartphones as the transaction device (Moore). An individual can consider a small entrepreneurial venture that provides home repair services to UK consumers. A very saturated competitive environment, an innovative entrepreneur could develop a smartphone or Android application that allows a consumer to book and schedule services and make appropriate deposits or payments using their mobile devices. Rather than receiving a paper invoice or paying cash-on-delivery for services rendered, this might have advantages to busy professionals that want immediate completion of contracted repair services that gives a business a competitive edge within a regional perspective. Zhao (2005) conducted a case study research project of entrepreneurial ventures and found that innovation is a foundational method of providing the venture with growth and allowed the organisation to thrive long-term. There is ample evidence, therefore, that small entrepreneurial businesses would benefit from being innovative in offering mobile payment options to consumers. However, why are these ventures ignoring these demands? Could it be that some business owners, who are less theoretically entrepreneurial than other companies, do not recognise that this could be a source of significant competitive advantage? Brinckmann, Grichmar and Kapsa (2010) state that the largest predictor of entrepreneurial venture failure is that the business owner does not fully measure the impact of market needs and therefore does not provide a productive and worthwhile business model that helps to position the venture effectively amongst competition. Consumers throughout the United Kingdom, in the post-recession, technology-centric market environment, are adamant about wanting to select businesses that have these mobile payment options. Failure to react to changes in the marketplace and failure to consider consumer buying habits are cited as being the most significant failures of an entrepreneurial venture (Mason 2014). In a post-recession UK environment where small, medium and large-sized businesses are struggling with new strategies to gain consumer interest in an environment where discretionary spending is still down from pre-recession levels, it would appear that a true and successful entrepreneur would be willing to adopt a mobile payment innovation into their business model in order to outperform competition. This is not a significant expenditure and would require only minor modifications of certain value chain functions to support such an innovation. Large banks that have utilised mobile payment innovations to facilitate more convenient bank transactions have attracted considerable consumer interest and loyalty as a result of being responsive to development of creative solutions to make their banks more competitive. It would appear, therefore, that innovation is legitimately an aspect of a true entrepreneur. Mobile payment innovations can increase organisational productivity, open new markets, lower transaction costs, and increase effective demand which, in turn, leads to potential increases in investment and employment. Hence, the genuine entrepreneur as innovator not only improves the competitive and financial position of the entrepreneurial venture, but leads to long-term national and local economic improvements by providing government with higher taxation revenues, providing employment opportunities in a post-recession environment with a troubling unemployment problem, and would theoretically build a competitive brand reputation that gives the innovative firm more visibility and potential word-of-mouth advantages. Conclusion This essay explored the conceptions of what constitutes a legitimate and successful entrepreneur, discovering that such characteristics might be inclusive of opportunity spotting, risk-taking and innovation as key attributes. Opportunity spotting and innovative thinking appear to be solid aspects and could have significant competitive, financial and customer-relationship advantages for an entrepreneur that continues to assert these characteristics. Risk-taking, however, is a highly debated characteristic of a true entrepreneur and empirical studies not necessarily supporting that superior risk-taking behaviours lead to success, this characteristic of entrepreneurship might still be disputable. The literature on risk-taking as a valuable aspect of a genuine entrepreneur would seem to point towards the concept of risk-taking as being a daring and courageous activity that will lead to success if enacted. However, business studies in academics regularly assert that a company should establish a risk management model that recognises all internal and external risks that could challenge business success and develop contingencies to combat such risks. It appears, based on research, to be unrealistic to assume that risk-taking characteristics when not combined with careful planning, industry and market analyses, gaining knowledge of consumer behaviours, and evaluation of key statistical data about market trends will lead to success. In the post-recession UK environment where consumer spending is uncertain, where price competition is beginning to serve as a major competitive force to gain consumer demand, and where long-term GDP growth is only theoretical, risk-taking simply as an audacious and heroic activity seems impractical and idealistic. With theorists painting a portrait of the hypothetical entrepreneur as superhuman and valiant with taking risks (the very definition of risk means perilous, hazardous and precarious), this just does not seem very relevant in an uncertain UK economic environment. Despite the ongoing debate about risk-taking as an entrepreneurial characteristic, this study provided considerable support and examples that uphold the notion that opportunity spotting and innovation are key predictors of genuine entrepreneurial success. These concepts and characteristics of entrepreneurial attributes are highly relevant to the UK post-recession environment where consumers are attracted to creative products and services and where the general economic environment is finally supportive of business growth and/or expansion if an entrepreneur is keenly aware of how best to structure the business model to meet these opportunities. Marketing and business-based literature regularly asserts that environmental scanning is a critical success factor for developing operational strategies that can effectively position a business positively against competitive forces. 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