Developments in the US market

Market saturation In recent years
the UK has been a target market for
US credit card companies. Their
interest in the UK market may in
part reflect the fact that the UK
credit card market is highly concentrated;
a relatively limited number
of providers control a significant
percentage of the market share. By
contrast, there is far lower concentration
in the US and the credit card
market is approaching saturation.
Any recent growth in the US
has been based on either winningover
customers or exploiting niche
markets, which could include highrisk
customers. Although “balance
transfer” was the approach favoured
by US card issuers in the US market,
as competition has increased, it is no
longer as popular. There are high
acquisition costs in trying to “poach”
customers from competitors as the
issuer may have to pay a premium
for each balance. The need to
dangle additional “bait”, possibly a
low “teaser” rate, will have an
impact on the net interest margin,
albeit in the short term.
Targeting of “underdeveloped”
credit consumers might involve
reaching out to high-risk segments
of the market in the quest for growth
— those customers with a low
income or high debt, the elderly, or
those with a problem credit history.
Obviously, the increase in risk
means that high quality riskadjusted

GROWTH IN THE UK

In 1990, total credit card debt
outstanding was almost £9bn and by
1996 this had grown to about
£16bn. In 1990 there were some 80
card issuers and by 1996, this had
grown to more than 800, a ten-fold
increase. This growth partly reflects
the overall growth in consumer
credit in recent years — in
December 1992 annual growth of
consumer credit was 1 per cent and
by June 1997 was more than 18 per
cent. However, Chart 3 shows that
since 1990 the growth in credit
cards has generally been faster than
that of other forms of consumer
credit. At present, credit cards
account for about 21 per cent of net
lending of consumer credit in the
UK (up from 19 per cent in 1991).
The strong growth in the UK
credit card market is all the more
significant because a number of
commentators had believed the
market had reached maturity five or
10 years ago — this belief was
influenced by the fact that the
payment card market in the UK is
one of the most developed in
Europe. However, a comparison
with the US credit card market
shows that the UK has some way to
go to reach the maturity of the US
market. In 1994 there were twice as
many cards per head in the US
as in the UK and borrowing on
credit cards accounts for a larger
proportion of unsecured consumer
borrowing in the US than in the UK

HOW CREDIT CARDS WORK

The credit card market consists of
two very different businesses: card
issuance — the “consumer end”,
which provides credit cards and
bears the credit risk of the customer
and merchant acquiring, and the
“backroom business”, which “signs
up” outlets to accept credit cards
and carries out processing.

The two businesses are distinct,
and in the UK only a few firms are
active in both. Box 1 shows the
interaction between these two businesses.
If the card issuer is a
member of an international payments
system, such as MasterCard or VISA,
an additional “link” is involved
between the merchant acquirer and
the card issuer.1
This article concentrates on the
card issuance business — the area
of greatest change. This business
earns income from both interest
and non-interest sources, although
interest income is usually the main
source.

THE UK CREDIT CARD MARKET

The credit card market in the UK has attracted interest over recent
months, partly because of the strong growth it has enjoyed and also
because of the aggressive behaviour of a number of new entrants. This
article looks at the market and compares some of its characteristics with
those of the credit card market in the United States.

The credit card market is unusual,
so any analysis requires an understanding
of the mechanics behind
the product and the market. The first
part of this article outlines some of
the key sources of income and costs
faced by card issuers and how these
influence the net interest margin of
the product. The next section
considers the recent growth in the
UK card market. Observers have
commented on the similarity between
the UK market now and the US
market 10 years ago, so this section
also concentrates on some recent
developments in the US market.
Then some of the similarities and
differences between the UK and US
card markets are examined, which
may indicate whether the UK will
follow the US trend and issues that
may arise if it does so.

Generational differences and length of time in the UK

Conflicts between older and younger generations were noted,
particularly in Indian communities which had migrated to the
UK in the ‘60s and ‘70s. The older generation had a strong
connection to their homeland whereas their children viewed
their home as the UK2. Recently arrived migrants relied heavily
on their cultural communities to help them establish a place to
live, find employment, provide initial financial support and act
as a conduit with formal institutions. Historical evidence from
Cape Verde indicates that second generation migrants send
less money home than first generation migrants3. Lowell’s
analysis of US-Latin American corridors found that migrants
remit less as time spent in the United States increases4.

Checklist for positive regulatory frameworks for payments in developing countries

A checklist10 to promote a positive regulatory framework for
payments in developing countries is detailed below:
Legal and regulatory issues – are there well functioning
regulatory bodies that administer all participants in the
market? Are legal rights enforceable?
Clarity of regulation – to what extent are there clearly
defined regulations/guidelines regarding acceptable
identification, threshold levels and customer rights? Do
the regulations explicitly address money laundering and
terrorist financing?
Exchange rate regime – what exchange rate regime
does the country operate? How much freedom do
companies have to price the exchange rate to
customers? Are people allowed to receive and hold
foreign currency?
Reputational risk – how does the country measure up
against the international standards over money
laundering, as laid down and assessed by the FATF, IMF
etc11? Are there reputational risks for international
companies participating in this market (e.g. regarding
corruption in country)?
Importance of remittances – how important are
remittances seen in the context of the national economy
from the perspective of the Central Bank?
Barriers in sending countries – what restrictions can
prevent migrants from sending money back? Are
remittance recipients taxed on the income they receive?
Lack of a “productive” use of remittances – what
incentives are in place to leverage remittances into the
formal economy rather than the cash-based economy?
How is saving and investing encouraged rather than
consumption?
A checklist to assess the level of development of the market
is detailed below:
Technology and infrastructure – is there a well
functioning and efficient payments system in place? Is
there the technology infrastructure to encourage product
innovation and access to non-branch networks?

FSA regulation of MSB Activity

Firms authorised by the FSA for their regulated activities,
such as accepting deposits, may also offer MSB services.
Retail and wholesale banks for example, often provide money
remittance services, and at least 40 firms are known to offer
bureau de change facilities.

The FSA’s expectation of all firms is that they should
manage their risks effectively and comply with relevant legal
requirements. In all aspects of its regulation the FSA
stresses the importance of a risk-based approach, that firms
should focus more efforts on the higher risks and less on the
smaller ones. This risk-based approach is crucial in the
money laundering (ML) and terrorist financing (TF) context.
The FSA looks to a firm to have systems and controls that
(a) enable it to identify, assess, monitor and manage ML/TF
risk; and (b) are comprehensive and proportionate to the
nature, scale and complexity of that firm’s activities. It follows
from this that firms should have in place risk-sensitive and
effective ID check arrangements; and that they should
deploy ID alongside other ML/TF tools in order effectively to
manage their risks. Firms are under no obligation to use the
types of approach recommended in the JMLSG Guidance
Notes, but if they choose to do so the FSA would take this
guidance into account in the event of considering any
potential regulatory breach.
The FSA has acknowledged that there can be a ‘fear factor’
with respect to their supervisory approach and enforcement
actions, some firms take a very conservative approach to ID
in order to reduce the likelihood of regulatory sanctions. The
FSA is concerned that any such fear detracts from the
effectiveness of the ML/TF regime and may impact adversely
on consumers. With this in mind Philip Robinson, the FSA's
Financial Crime Sector Leader, wrote to Ian Mullen,
Chairman of the JMLSG in October 2004 to put on the
record the FSA's approach to supervision and enforcement
over ML/TF risks. The letter underlined that only when there
is significant failure in systems and controls does the FSA
consider taking public enforcement action. The letter also
signalled that the FSA would in future focus more on other
aspects of the fight against ML/TF, and is more likely to take
action over ID only if there are particularly aggravating
circumstances such as actual money laundering having
been facilitated by poor practices in the firm.

European developments and consumer protection

The Sending money home? survey3 found less than half of
UK banks and only one in five MTOs had a customer
service charter.

The European Commission is currently drafting a directive to
provide a new legal framework for payments in the internal
market (the draft Payment Services Directive or PSD). If
implemented, the PSD will introduce an
authorisation/registration regime for payment service
providers. All payment service providers will be subject to
conduct of business regulations, and payment service
providers that are not credit institutions or e-money issuers
will also be subject to prudential regulation. The conduct of
business provisions may include a requirement to provide
information to consumers about the conditions that will apply
to a service in words that are easy to understand and are in a
clear and readable form. The US recently introduced
consumer protection information of this nature in a bill to
Congress (17th February 2005). The provision of money
transfer services is expected to fall within scope of the PSD.
The European Commission is expected to adopt a legislative
proposal later in 2005. This would suggest that the PSD could
be implemented in 2008/09. It has yet to be decided who will
be made the UK Competent Authority or Authorities for the
PSD.
The Third Money Laundering Directive (expected to be
implemented by the end of 2007) will require member states to
have a licensing/registration system for MSBs, which includes
a fit and proper test for those who direct or beneficially own the
business. At present, the registration system for MSBs
operated by HMRC does not include such a test.

UK REMITTANCE MARKET

• Relevant physical distribution networks in both countries
- For example, the range of relationships that UK banks
have with partner banks in the recipient country
determines the reach of the bank in that country
• Level of technology in recipient country
- For example, the use of ATMs and POS terminals have
been successfully demonstrated in the Philippines where
there are over 6,000 ATMs. This would not be feasible in
Bangladesh where there are only 21 ATMs23. The lack of
POS/fixed landline infrastructure in sub-Saharan Africa
makes similar systems impractical. Other models such
as Celpay’s mobile stored value model in Zambia and
the DRC are more appropriate. Details have been
included in Section 4.6.3
• Access to elements in the value chain
- For example, recently several MTOs in the USA have had
their corporate banking facilities withdrawn due to
regulatory concerns since the inception of the PATRIOT
Act24. These concerns centre on fears of use of the MTO
sector by criminals for money laundering and terrorist
financing purposes. MTOs whose banking facilities are
removed would either have to access another crossborder
banking network, or close down. During a series
of meetings conducted by HMRC with MTOs many
complained of the difficulty in obtaining a bank account
through which to operate MTO business.

Additives potentially derived from GM origins

This Appendix describes those materials that are legally defined as “additives”34
and which will generally be required to be identified on food and feed labels.
The law concerning the definitions of additives and “processing aids” and the labelling
requirements associated with these is complex but is of direct relevance to the
interpretation of some “GM avoidance” policies.
EU legislation defines a ‘food additive’ as:
“any substance not normally consumed as a food in itself and not normally used as
a characteristic ingredient of food whether or not it has nutritive value, the
intentional addition of which to food for a technological purpose in the manufacture,
processing, preparation, treatment, packaging, transport or storage of such food
results, or may be reasonably expected to result, in it or its by-products becoming
directly or indirectly a component of such foods”.
Certain categories of materials are excluded from this definition:
• processing aids35
• flavourings, as defined (Directive 88/388)
• nutrients such as vitamins, minerals and trace elements
• plant protection products.
As with “ingredients” (appendix 1), food labelling legislation grants a few, limited
exemptions from declaration of the presence of additives in food, the principal ones of
relevance to the GM debate being:
• processing aids (as defined)
• substances used to facilitate storage, sale, standardization, dilution or
dissolution of an additive / additives, providing the use is no more than
necessary.
Recent changes to labelling rules, however, over-ride these exemptions and now
require allergenic derivatives of soy to be identified on the label, whatever their
purpose or level in the food, unless they have been granted specific exemption. Thus,
all protein derivatives and products of these will need to be declared but refined oils
and their derivatives, if used in a way that is eligible for the original exemption, will
remain exempt.

Non-GM policies: cost implications

This section builds on the analysis presented in section 4 by examining, for a
range of food products, the current and likely future costs of maintaining a non-
GM ingredient policy. This has been undertaken by assessing the costs of key
ingredients according to whether a non-GM policy is applicable or not (i.e.
comparing ingredient/raw material costs for a GM versus non-GM derived
product). Where relevant (e.g. where soy or maize-based ingredients are used),
an additional forward looking (2-3 years) assessment of costs is also provided.
The products have been selected to represent a range of applications where GMO
avoidance policies are in place. They include products where GM ingredients
represent both a significant proportion of total ingredient use, products where reformulation
of ingredients used (as distinct from switching to a non-GM equivalent of
the same crop) has occurred and livestock-based products where GM ingredients are
important components of feed. The products use recipes that may be regarded as
typical of the sector concerned:
a) Fresh poultry meat
b) Soy oil and onward conversion to margarine
c) Flour-based baked product: synthetic “cream”-filled, coated biscuit
d) Chocolate-based confectionery product: similar to above, with typical chocolate
coating
e) Pizza: “deep pan” base with ham and mushroom topping
f) Prepared ready-meal: chicken breast with bacon, savoury stuffing and sauce

The current balance of supply and demand

At present, the level of demand for non-GM soybeans/derivatives is significantly below
the available supply. Global demand for non-GM soy is probably about 10-12 million
tonnes of bean equivalents. Global supply has been and is, currently significantly
above this volume; looking at Brazil alone, the primary source of non-GM soybeans
and derivatives, total exports of soybeans and soymeal were respectively in 2003/04
23.4 million tonnes and 14.7 million tonnes. GM soybeans accounted for 23% of total
production in Brazil in 2004, mostly located in the Southern most states. Thus if it was
assumed that about 50% of the Brazilian crop (that grows roughly North of Sao Paulo)
is not subject to any co-mingling with the GM soybeans (i.e. crops grown in the
Northern half of the country are unlikely to be mixed with crops from the South where
the GM crops are concentrated), and then about 25 million tonnes of (non-GM)
soybeans were probably available in the Northern half of the country. Whilst a
significant proportion of this crop may be used domestically, this represents a fairly
large supply base from which the global demand for non-GM soybeans can be met.
Thus global demand has been relatively easily serviced by available supplies
from Brazil alone. In this circumstance, it is not surprising that the price differential
for GM versus non-GM soybeans/derivatives has been fairly small.

Inconsistency between crop-derived and fermentation-derived products

A large number of common food and feed ingredients, additives and enzymes are
produced directly or indirectly from GMMs, or using enzymes that have been derived
from GMMs. The nature and complexity of these production routes are not widely
recognised, nor is it widely appreciated that some apparently similar products may be
treated differently under the current EU labelling regime depending on whether they
are derived from plant or micro-organism / enzyme origins.
In particular, the requirement to identify positively, trace and label derivatives of GM
crops, regardless of the number of stages of purification and/or subsequent chemical
modification undertaken or the level of use, is inconsistent with the approach taken
towards similar derivatives obtained from, or with the aid of, GMMs (or using enzymes
derived from them).
Any operator wishing to avoid positive GM labelling of ingredients, additives and
enzymes derived from crops that may have a GM origin will have to set up systems
and records to ensure that only ingredients derived from non-GM origins are used.
Similar requirements will apply to imports of finished products from third countries
where raw materials derived from GM crops are widely used and, in particular, those
countries where segregation of GM and non-GM materials is not widely practised. [The
crops of principal commercial interest, and which therefore comprise the focus of this
research, are soya, maize, rapeseed and cotton. Very small quantities of other GM
crops are grown locally but are of very limited significance in international trade.]
In contrast, no such requirement for labelling currently applies to users of materials
derived wholly or in part from a GMM, where no residues of the GMM remain.

Non-GM policy: cost implications

Table 1, Table 2 and Table 3 summarise the nature of non-GM ingredient policies and
their supply availability and cost implications for a selection of food and feed products4.
This covers both the current market position and likely developments in the next 1-3
years. The key points to note are:
• Almost all of the additional costs involved in using certified non-GM raw
materials have been borne by the supply chain up to (but not including) the
retail sector5;
• For a number of food products, where incorporation rates of relevant
ingredients are low (e.g. chocolate confectionery and biscuits, pizza and readymeals)
the additional raw material cost of switching away from GM-derived
ingredients has been relatively small. No significant changes to this position
are expected in the next 1-3 years;
• For margarine manufacturers, the switch away from GM-derived ingredients is
adding significantly (over 16%) to raw material costs. At the EU level, this is
adding possibly up to €85 million to the annual raw material costs to the
sector6. This is also likely to continue in the next 1-3 years;
• For producers of poultry meat, whilst the additional costs associated with using
non-GM protein (soymeal) in diets has added up to 2% to feed costs (at the EU
level, adding between €10 million and €50 million to annual feed raw material
costs7), the negative impact on profitability has been more marked (up to -7%).
In the next 1-3 years, these costs are likely to increase significantly (at the EU
level, adding between €41 million and €129 million to the cost of feed raw
materials), potentially resulting in profitability losses of 9%-29%. These levels
of losses are likely to be unsustainable and continuation of a non-GM protein

A culture of ensuring accommodation for everyone

Research has found that the culture of organisations in which staff
with disabilities were working in a positive environment and making
a valued contribution were those where adjustments were regarded
as “no big deal”. These employers adopted the approach of making
regular adjustments for non-disabled staff on the basis of whether
they increase efficiency, make good business sense, and help to retain
valued employees. Any adjustments made for staff with disabilities
were no different in approach.
What all public bodies can do is to encourage, through training and
leadership role-modelling, a culture in which it is usual practice to
ask people if there is any way that their work routine, activities or
workspace can be made more efficient for them.

Performance management culture

A robust performance management culture is very important for
organisations to thrive. This should include regular, formal reviews
of staff performance, and informal opportunities when line managers
offer staff both positive and constructive, critical feedback. However,
discussions about performance are key events during which line
managers need to be aware of the possibility of unconscious
discrimination due to attribution theory.

Career development culture

Crucial to the retention of staff is their perception of whether they
will be able to develop within an organisation in a way that meets
their aspirations. Unfortunately, research seems to suggest that
people with disabilities who would like to progress their careers
are often not given the same opportunity as the non-disabled.

The influence of leadership style

Research finds that the single most important positive leadership
factor in organisations is whether the leader shows genuine
concern for their staff. This has been found to be the leadership
factor most strongly associated with staff motivation, commitment,
satisfaction and reduced stress. In turn, these outcomes have been
demonstrated as being linked to significantly increased
organisational productivity and performance.
In practice, this describes a manager displaying individual-focused
behaviours and attitudes such as showing genuine interest in staff
as individuals, trying to see the world through their eyes, showing
that they value their contribution, developing their strengths through
coaching and mentoring, and having positive expectations of what
their staff can achieve.

Recruiting staff with disabilities

The recruitment of people with disabilities relies on the ability
of the organisation to regularly reach people with disabilities in
the community. This means that a policy should be introduced and
monitored which states that vacant posts are advertised widely in
line with best practice in accessibility.
It is increasingly argued that the nature of job analysis has changed
since jobs themselves are no longer necessarily clusters of similar
tasks, but often collections of activities and that selection should
focus more on what people could do rather than what they can
demonstrate having done in the past. Given that people with
disabilities tend to have had less opportunity than non-disabled
candidates to demonstrate their capability through a clear job
history, it seems that such an approach to recruitment and
selection, as well as benefiting the organisation as a whole, would
increase the chances of recruiting people with disabilities, and thus
enabling them to harness their capabilities in a meaningful way

The importance of a culture of confidence in disclosure

Research has found that, in many organisations, people feel
intimidated about revealing their disability because of fears that
they will be seen as less competent as a result. Therefore, it is
essential, if targets are to be effectively monitored and reviewed,
that the culture of the organisation is one which demonstrates
that people with disabilities are regarded as competent and are
genuinely valued in the workforce.
In order to achieve this, there needs to be disability awareness
training for all staff which addresses the stereotypes that people
hold of others with a disability, and which outlines why it is useful
for an organisation to reflect this type of diversity. The training
should be openly endorsed by the Chief Executive. It should be
mandatory for staff to attend, particularly senior staff, and should
become part of the induction for all new recruits in order to
imbed it in the organisation’s culture.

Global Political Trends

In today’s world economy, international political events greatly affect marketing
activities. One significant trend is a move from government-dominated economies
and socialist political systems toward free market economies and, in many
countries, democratic governments. The republics in the Commonwealth of
Independent States and former communist countries in Eastern Europe, such as
Hungary, Romania, and Poland, are moving in this direction at various rates.
China is taking a different tack: trying to promote a free market economy within
its socialist political system. This objective may be difficult to achieve, as rapid
economic growth is generating pressure for a more democratic political system.
These historic developments offer potentially huge market opportunities for
many firms, given that these populations need many different types of products
and services. Creating effective free market economies is likely to take a long time
and considerable effort. Many countries continue to struggle with new political
and economic systems.
A second important political trend is movement toward free trade and away
from protectionism. One approach is the development of trading blocs throughout
the world. The largest trading bloc is the European Economic Area (EEA). It
Exhibit 3.7 American customer satisfaction quarterly index: Quarterly history for
manufacturing/nondurables sectors (0–100 scale)
Sector Industry
1994
(Baseline) 1995 1996
% change
1995 to 1996
Manufacturing/nondurables sector 81.6 81.2 79 −2.7
Apparel/athletic shoes 79 79 77 −2.5
Apparel/sportswear 82 81 78 −3.7
Beverages/beer 83 81 79 −2.5
Beverages/soft drinks 86 86 86 0.0
Food processing 84 84 83 −1.2
Gasoline 78 80 77 −3.8
Personal care and cleaning products 84 84 80 −4.8
Publishing/newspapers 72 68 69 1.5
Tobacco/cigarettes 81 82 77 −6.1
Chapter Three The Global Marketing Environment 61
consists of 17 European countries from the Arctic to the Mediterranean, representing
372 million consumers and a combined GDP of $6.6 trillion.27 The next
largest is the North American Free Trade Agreement (NAFTA). It consists of the
US, Mexico, and Canada and includes 360 million consumers and $6 trillion
GDP.28 The aim is to eliminate trade barriers and to promote easier access to the
markets in each participating country. As this development continues, trading
blocs have the potential to generate many opportunities for marketers.

Identifying Market Opportunities and Threats

Many firms use environmental scanning to identify important trends and determine
if they represent present or future market opportunities or threats. As
illustrated in Exhibit 3.2, this procedure consists of identifying relevant factors and
assessing their potential impact on the organization’s markets and marketing
activities. This is simpler to say than do, because many of the potentially
important environmental factors are interrelated and many of them change
constantly.
Skandia, the $7 billion Swedish financial services giant, used an interesting
approach to identify future growth opportunities. The company established a new
unit, Skandia Future Center, and selected 30 diverse people from around the world
to form five Future Teams. Each Future Team consisted of a mix of three
generations (20-somethings to 60-somethings), functional roles, organizational
experiences, and cultural backgrounds. The mission of each Future Team was to
explore one of five major environmental forces (the European insurance market,
demographics, technology, the world economy, and organizations and leadership)
and develop a vision of the future for Skandia. The Future Teams presented their
ideas to a group of 150 executives. The executives then formed 20 small groups to
brainstorm responses to the ideas developed by the Future Teams. The process
produced several innovative ways for Skandia to grow in the future.1
One way to deal with a volatile marketing environment is to use the seven key
marketing perspectives discussed in Chapter Two. As shown in Exhibit 3.1, these
perspectives are at the interface between the controllable marketing circle and the
uncontrollable marketing environment. They thereby provide important orientations
for viewing the marketing environment, assessing market opportunities and
threats, and determining the best marketing responses to the changing environment.
The perspectives work both ways: they guide both a marketer’s outward
evaluation of the environment and inward response to the environment through
marketing decisions.

Creation of Market Opportunities and Threats

The marketing environment creates opportunities or threats in two basic ways.
First, changes in the marketing environment can directly affect specific markets. A
market is a group of people or organizations with common needs to satisfy or
problems to solve, with the money to spend to satisfy needs or solve problems, and
with the authority to make expenditure decisions. Specific markets can be defined
at many different levels. For example, Chrysler’s overall car market includes the
new car, the sports car, the luxury car, and the minivan markets. Customers in
each of these markets desire a specific type of car and have the money to spend to
satisfy that need and the authority to make the purchase decision.
Changes in the marketing environment can make markets larger or smaller or
sometimes create new markets. Market opportunities typically arise when markets
increase in size or new markets are created. For example, population growth,
increases in income, and lower interest rates should present market opportunities
for Chrysler by expanding the pool of people who need some type of car and have
the money to purchase one.

Entrepreneurship, New Firms and Economic Growth: New Boys on the Block versus Golden Oldies

In contrast to the policy emphasis placed upon entrepreneurship, it is a
striking feature of the macro-economic literature on the determinants of
differences in economic growth that it very rarely mentions
entrepreneurship per se. It is also a pervasive problem of the literature on
the determinants of economic growth that there are so many potential
explanatory variables, and so many missing data problems, that systematic
analysis comparing alternative explanations is difficult to achieve. Thus
Freeman (2001) points out that in one influential review 87 different
explanatory variables are reported for testing on cross section samples of
long term growth rates for around 20 OECD countries.
In the case of adding entrepreneurship as yet another variable one key
problem is how to define and measure it. Another is dealing with problems
of causation. Are time series and cross section fluctuations in small business
formation and growth a cause, or a consequence, of variations in economic
growth over time, or across countries? Direct measures of entrepreneurial
attitudes and activity have recently been developed as part of the GEM
surveys. Development of better longitudinal datasets, of more direct
measures of different entrepreneurial activity of this kind, may assist in
econometric analysis of impacts on growth. Preliminary results along these
lines reported in GEM (2002), however, reveal few systematic connections
between entrepreneurial activity, entrepreneurial potential, or supporting
framework conditions and growth (see esp. GEM (2002) p. 23 ff.). The
GEM analyses are of necessity restricted to short periods and the authors
acknowledge that more work needs to be done. A number of other studies
9
have sought to link proxies for entrepreneurship, such as small business
shares, or self employment, to cross national variations in growth or
unemployment rates and report positive links or links which imply adverse
growth consequences if these proxies depart from estimated equilibrium
levels (see e.g. Caree et al (2002), Audretsch and Thurik (2002))7. It is also
possible to draw some broad conclusions about the significance of
entrepreneurial entry for productivity growth using a recent programme of
comparative international research carried out by OECD (OECD (2003)).
This decomposes productivity growth over time for a country into effects
due to new entry, exit, and the performance of survivors, respectively. The
analysis covers the largest OECD economies for the periods 1987-92 and
1992-97.

High Technology, Productivity and GDP Growth: Arkansas v. Silicon Valley

European policy concerns with the link between the science base,
technology transfer, and entrepreneurship developments have been given
particular impetus by the transformation of the relative growth and
productivity performance of the US economy compared to the EU and
6
OECD countries in the last decades of the 20th century. Particular emphasis
has been placed here on the role attributed to technology based sectors in
that transformation5.
A few salient facts may illustrate the kind of data upon which these
emphases are based. Between 1990 and 2000 the US economy grew at an
annual average rate of 3.2%, compared with 2.0% for the EU 15 and 2.5%
for the OECD 24 (OECD 2003). This was based upon faster productivity
growth, which in contrast to the EU was combined with increased
employment. By the turn of the last century high-tech value added as a
proportion of manufacturing was 25.8% in the USA compared with an EU
mean of 8.2% and the highest EU proportion of around 20% for Ireland (EU
2001).
It is worth looking at this performance more closely however. A number of
studies have revealed that the role of technology using sectors, and
innovation in organisational and management techniques bear as close
attention as the performance of the high technology generating sectors. A
recent analysis by Robert Solow is instructive in this respect
(www.cmi.cam.ac.uk/ncn/summit-2001-videos/solow/text.html). Solow
points out that US growth in the nineteen nineties was dominated by events
from 1995. Whereas real GDP growth per person hour was 2.9% from
1947-1972, and 1.4 % from 1972-1995, it was 2.5% from 1995-20006. Thus
the recent US performance in this respect is essentially a return to very long
run trends

Female entrepreneurship in the UK

In the UK the Labour Force Surveys provide the single
most significant source of national data on patterns of
female entrepreneurship. The last three decades have
witnessed unprecedented changes as women entered
higher education and paid employment in growing
numbers. The overall rise in female economic activity
during this time was also reflected in the number of
women setting up their own businesses (Figure 1).
The UK has also seen a rise in female-owned net
ventures, with companies such as lastminute.com,
Village.com, netimperative.com and everywoman.com,
owned by women, featured regularly in news stories.
Despite the economic problems faced by hightechnology
companies in the last year, Fortune
Magazine (Harrington, 2001) reported that ‘No matter
what happens to the economy, nearly everyone expects

Sources of US leadership in biotechnology

In 1953 Francis Crick and James Watson discovered the double helix structure of DNA, and set in train a series of advances in molecular biology out of which the modern biotechnology industry was born. Two key innovations were made in the 1970s.

High-technology entrepreneurial activity in Britain

From the end of the second world war to the 1970s the economic and political climate in Britain was not conducive to entrepreneurial activity. Macro-economic conditions were unstable, and the high level of personal taxation, both on income and on capital gains, discouraged investment in high-risk, high-return ventures. A few financial institutions specialised in supporting technology-based firms. For example, Technical Development Capital was set up for this purpose in 1962; it was later acquired by Investors in Industry, the small-business financing organisation which had been established by the clearing banks and the Bank of England after the war.v But the venture capital industry was undeveloped compared to that of the US.
Some high-technology businesses were started during this period, and a few of them did well. A study of new technology-based firms (NBTFs) carried out in the mid-1970s by Arthur D. Little, the management consultants, identified about 200 such firms which had been created since 1950 and were still in existence at the time of the study.vi The largest of them was Racal, a specialist in wireless communications equipment; in terms of annual sales, Racal and three other relatively large firms (Staflex, Solartron and Unitech) accounted for roughly half the total. The record in Germany was not much better, despite the superior performance of the German economy. The study identified less than NTBFs in Germany; Nixdorf, the computer manufacturer, was by far the largest, accounting for 65 per cent of total sales.
Overall, the study concluded that the number and performance of new technology-based firms in the UK and Germany had been unimpressive, especially in comparison with the US. “With a few honourable exceptions, such as Racal and Nixdorf, NTBFs in the two countries have demonstrated no particular success whether measured in terms of numbers, size, growth or contribution to GNP or employment”. Whereas the total sales of NTBFs in each country amounted to not much more than £200m in 1975, “there are several thousand NTBFs in the US and their sales run into billions of dollars”.
In seeking to explain why the American record was so much better than that of Germany or the UK, the study noted a number of favourable factors in the US:
- a very large domestic market conducive to rapid growth and development
- the availability of private wealth as a source of seed capital for the start-up of new ventures
- a fiscal framework which encourages the flow of risk capital into new ventures
- the existence of an active market for the trading of shares in new ventures, ie the over-the-counter (OTC) market
- a prevailing attitude in society at large which encourages entrepreneurship
- greater mobility of individuals between academic institutions and private industry
- the behavioural and attitudinal character of American scientists, many of whom are willing to set up their own businesses in order to exploit their technical knowledge
- a large and active government expenditure programme in high technology areas which provides significant opportunities for NTBF endeavour, particularly through government procurement programmes.