All agree: small is beautiful

Press, 26 September 1989, Page 26

All agree: small is beautiful

By

NEILL BIRSS

Small is beautiful has been a catch-cry of conservationists who see economic growth as a threat to the world. Now those who want economic growth echo the call. Around the Western world, small business is regarded as vital for a growing economy. Small businesses are valued as the main creator of jobs, and as a chief agent for introducing new technology. The most dynamic economies in the world have strong small business sectors. The huge Japanese business groups and other giant companies — such as Mitsubishi, Mitsui, Nippon Steel, Toyota, and Honda — stand on a base of about 850,000 small manufacturers, about twothirds of them sub-contractors to the big firms.

Small business is especially vigorous in the United States. Tiny companies have fuelled the growth of new-techno-logy industries and allowed the country to create new jobs at a phenomenal rate. Companies such as Hewlett-Packard and Apple Computer, both begun in home garages, have quickly become technology multinationals. Italy, whose economy has grown to match that of Britain, has a very strong small-business sector. The booming fashion and textile houses of Northern Italy buy much of their work in from tiny subcontractors. In all these countries there is a close relationship between big and small business. The small firms cushion the large companies in times of economic downturn, and provide quick expansion of supplies and rapid changes in manufacturing to incorporate technology change and market moves.

How does small business fare in New Zealand? Read the columns of small businesses for sale in “The Press” on Saturday, and you will find many of them are dairies and coffee bars. But Alan Bollard, director of the Economic Research Institute, in his book, “Small Businesses in New Zealand,” suggests we fall between Britain, whose culture is not so stimulating to small business, and the United States, where small business is admired, and people who fail are admired for having “given it a go." New Zealand has about 120,000 registered companies, the great majority of them tiny. It has about 93,000 selfemployed people who do not employ labour, and about 75,000 self-employed who do. Many of these people are sole traders, or are in partnerships, rather than running small private companies. The figures use the classification of a small firm as one with fewer than 20 employees, or, if it is a manufacturer, fewer than 50. The traditional function of our small firms is to produce things that large firms cannot produce more cheaply because of the returns to scale of mass productions. Some industries are dominated by small firms. In New Zealand these include baking, wine making, leather clothing, sawmilling, printing and publishing, concrete products, agricultural machinery, wire working, ship-building, building caravans and trailers, making toys and games, food selling, motorvehicle dealers, caterers, car repairs, electrical repairs, panel beating, laundry services, hairdressing and beauty shops, photography studios, and funeral directors.

For decades, many believed that ultimately large business would swallow up all small business. This is not so, and as new industries emerge they are often pioneered by small firms. It is this special type of small firm that many countries are trying to encourage. Tax breaks, technology parks, and subsidies are offered to the small firms which seem destined to grow rapidly and have the chance of spinning off other small firms or of growing into large companies. A Christchurch example of such a firm is the Unisys LINC centre. This was founded this decade by Mr Gil Simpson and Mr Peter Hoskins. Mr Simpson had a background of data processing. He left Christchurch Boys’ High School to work in a bank, and an aptitude test for the bank’s new data processing department discovered his potential. Mr Hoskins was an accountant. He and Mr Simpson worked together in Saudi Arabia, and decided a way was needed to simplify writing computer software. They saved their earnings, and on return to Christchurch set out to make their idea into a product. They lived on their savings, and worked at a borrowed computer during the night when it wasn’t being used. Sometimes, the staff of the office would arrive in the morning to find them still working. They completed their product, moved into an old warehouse in Sheffield Crescent, and the business took off. Now Mr Simpson and Mr Hoskins as directors of Aoraki Holdings, their company, own the Unisys LINC Development Centre. They have long since sold their product, LINC, which generates business computer systems, but they develop it under contract to the American computer corporation, Unisys. The two men are principals in a second computer venture, Cardinal Network, which supplies computer processing and services such as “night watch,” which is the remote monitoring of customers’ computers during the night. LINC has created about 300 highly paid jobs in Christchurch, and created business for hotels (hundreds of overseas people come to Christchurch to train in LINC), and firms such as printers, caterers, builders, architects (the LINC centre is now huge), and electricians. Such innovative small business has risk, of course. A tenacious attempt by Mr Rodger Nixon to establish a software generation product, Exsys, in Christchurch, foundered after years of work, and at a cost to many dedicated workers. Research has shown that new small firms have a higher chance of surviving if the principals are trained in small business techniques, especially in preparing a business plan and in costing out plans. Many courses are now available. Even more important than the training are cultural factors. Immigrants have always and everywhere started new buisnesses. This is one reason why the American economy is so resilient. Wave after wave of migrants has brought a tradition of work and ambition. ... , „ But some migrants are more likely to set up businesses than others. Bollard writes that census data shows immigrants from Continental Europe (that is, excluding Britain) and Asia are more likely to set up businesses than other

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Classroom Commerce

migrants. This is one reason why New Zealand is encouraging rich Asians to migrate to the country. Whether this will be more successful than bringing in poorer people with the drive to succeed remains to be seen. Cultural background plays a great part in people’s attitude towards business, and even to types of small business they favour. Maoris, for example, tend to favour co-operative enterprises rather than one-person firms. Many Maoris run European-style businesses, but Maoris seem to shine in communal ventures such as shearing gangs, marae-based ventures, and forestry and agricultural groups. Some of the Maori gangs show in their legitimate activities how Maori communal enterprises can thrive. Unemployment has stimulated many people to set up businesses for themselves. The jobless number heavily among the trainees at the Resource Centre in Christchurch. Some go on to establish successful businesses. Entrepreneur is a much misused word. It is too broad to apply to all those who found businesses. It comes from a French word meaning “to undertake.” Bollard reserves the use of to those who take risks to exploit new commercial opportunities. He writes: “The shopkeeper, the taxi driver, the franchise-holder, and the farmer are generally following well-trodden paths in their business. But the inventor of a new product, the shop handling novel items, the printer offering a new service, the ski-field in a new location, the horticulturist with a new fruit — all sorts of business where there is uncertainty involved — these are the real entrepreneurs.” American and British research suggests some types of personality are more conducive to entrepreneurship than others. Steven Solomon, in “Small Business U.5.A.,” reports a study that found American entrepreneurs were quite a different breed from other business executives. “They can best be characterised as high-achievement and recogni-tion-oriented, driven and restless, social misfits,” he writes. A high percentage had university degrees, but were twice as likely as business executives to have been expelled or suspended from school. They participated less in sport, joined fewer community activities, and took fewer holidays than executives. Entrepreneurs tend to be driven by things other than the desire for money, Solomon writes. “Highly successful entrepreneurs often have an extreme need for recognition, power, independence, and the satisfaction of creating something wholly their own. Most are highly competitive and see only two places to finish — first or last. Many draw no distinction between work or play. They are often colourful, eccentric, and sometimes rebellious personalities that have trouble with authority figures of all sorts. Often they are loners, and — before finding success in business — drifters.” The entrepreneurs are a sublet of small-business people, but an important one which can drive the economy forward and create many new jobs. The most important thing New Zealanders could do to encourage small business would be to shift our views of it further from those of the British and closer to those of the Americans. In Britain, Bollard points out, small business has been seen as neither a safe nor a high-status occupation. In America, however, a recent survey indicated that close to 90 per cent of people would approve of their children starting their own business. This is a much higher approval rate than in other countries, and one, which for our economic future, we should try to match. (This is the third in a series of articles for use in schools.) Activities • Find an idea for a small business. Find out which other firms are in the field. See if you can make a good estimate of the size of the market for your product or service. Estimate how much it would cost to set up. Rent, wages, stock, production, power, telephone, advertising are some of the costs you should consider. Work out how much you would have to charge and how much business you would have to do to break even. • List the small businesses you come into contact with. Find a new field that could be the basis of a start-up business. It might be entertainment, a shop, a home service, forestry or farming, science, computing, crafts, sales, tourism, a service, or any other activity. • Think of someone whose personality marks them as a possible entrepreneur. Think of someone who might succeed in a cooperative type small business. Would you like to be in either? Business quiz 1. Which N.Z. company has just bought into the Australian brewing industry? 2. Name the Australian company involved. 3. Who is the chief executive of Lion Nathan? 4. Which N.Z. corporation is under threat of being would up? 5. What was the profit reported by Fletcher Challenge for the year ended June 30? 6. What has been advocated by Mr John Elliott, chief executive of Elders IXL, recently? 7. What metal is mined on the island of Bougainville? 8. A mining licence is about to be issued to two Australian investors for what could prove to be N.Z.’s largest gold mine. Where is this mine? 9. Which N.Z. company has recently floated a share issue and is extensively advertising it? 10. Which bank has just bought the Westland: Bank (the West Coast Trustee Savings Bank)? i