Select Committee on European Union Written Evidence

Memorandum from Scottish Enterprise


  1.  The Committee wishes to identify best value policies in promoting the translation of entrepreneurship into successful business growth and development and what lessons can be drawn for policy co-ordination. This paper concentrates on the lessons Scottish Enterprise has learned over the last 12 years we have spent promoting and supporting entrepreneurship in the for-profit technology based sector to deal with barriers to business growth and development—both in small and medium sized enterprises (SME) and in the "intrapreneurial" behaviour in large firms.

  2.  Innovation and entrepreneurship is about new products, new services and different approaches to all aspects of business as well as science and technology. A self sustaining "Knowledge Economy" needs R&D intensive industries to generate an increasing share of economic impact, established industries to adopt technology, and all sectors of the economy to be innovative and adopt new technology and knowledge. The understanding of the barriers to entrepreneurship in technology based companies is therefore key.


  3.  Scottish Enterprise (SE) is the economic development agency for lowland Scotland, covering 93 per cent of the population from Grampian to the Scottish Borders. We are responsible for implementing economic development policies (including skills and learning) through a network of 12 Local Enterprise Companies. We report to the Scottish Executive and through it to the Scottish Parliament. Our operating strategy is set out in Smart Successful Scotland; Ambitions for the Enterprise Networks, published by the Scottish Executive. [12]

  4.  Entrepreneurship is recognised explicitly as a major strategic theme and as a result many of our activities focus on fostering entrepreneurship in SMEs as well as stimulating start up activity in key sectors. Our key targets include new start ups, improved innovation performance, academic and company spin outs, new product and processes launches and use of e-business.

  5.  Within the last year we have also taken responsibility for Careers Scotland. Careers Scotland is an all age guidance and career planning service. Crucially for the future of Scotland, one of its most important roles is the support and development of entrepreneurial activity, behaviour and skills of young people. This paper does not explore this work in detail however we believe that the development of our next generation of entrepreneurial business people and employees is an important facet of our work.


  6.  The development of technology-based industries is an important part of our strategy and our approach combines a range of different policies to address barriers to the process of developing entrepreneurship in the sector. Particular barriers we are addressing are:

    —  access to funding for technology-transfer process;

    —  access to start-up venture finance; and

    —  entrepreneurial capacity and capability of management teams within new businesses.

  7.  We outline some key initiatives in the following section, starting with the development of leading technology clusters as this perhaps most clearly illustrates the joined up/holistic approach which we believe is especially important to achieve success.

The development of leading technology Clusters

  8.  We have specialised "cluster" teams targeted in Scotland's leading-edge industries and technologies, including Biotechnology, Energy, Creative Industries and Microelectronics. The teams build on the strengths of the clusters in technology and links to market. Critically, the teams work with the industry to identify workforce development issues. These can range from supply side issues in relatively low-level technical support skills to post-doctorate levels. They would also include demand side issues such as effective access to training and development and management business skills.

  9.  Where feasible, in that there exists a sector skills council (SSC) that matches the Scottish cluster, we are working with SSCs on the development and implementation of workforce development strategies. Whilst early days in the life of SSCs, such joint working is important, not only to co-ordinate skills delivery but to add greater value to than the sum of the parts and to avoid confusing the sector itself.

  Key projects include:

  10.  The Alba Centre in Livingston, the hub of a Scottish initiative aimed at driving the future of electronic design. It represents a unique collaboration involving government, industry and academia to create a world-leading centre for the electronic and related design industries of the future. [13]A key part of the initiative is the Institute for System Level Integration which has a specialised engineering doctorate programme (the only one of its kind in the UK) concentrating on building entrepreneurs and managers in electronic design. In addition, the Alba Campus offers accommodation to companies from start-ups to multinationals, and the Alba Centre team works with electronic design companies across Scotland at all stages in their growth.

  11.  Biotechnology Business Advisor Service (BBAS), a dedicated team of specialists who are working with Scotland's biotechnology community to develop its businesses further, to commercialise its biomedical research strengths through collaboration with international companies and to create entrepreneurial spinouts. This work with industry and academic leaders has resulted in the implementation of a specific action plan (1999-2004) with a £40 million injection from SE.

  12.  Creative Industries Strategy, a world beating Digital Media Centre is being developed in Glasgow, targeting the development of Scotland's strengths in radio and television, new media, film, music production, design and cultural industries. A similar Creative Industries Park is also being developed on Tayside, with an emphasis on developing Dundee's strengths in the games sector.

Capitalising on Scotland's research base

  13.  Entrepreneurship, reflected in the creation of high-growth new starts and the spin-out ventures form research institutions, universities and existing firms, is a major element of the development of technology-based industries.

  14.  While Scotland has a reputation for world class academic research, the commercial potential of this scientific base is not fully realised. Similarly, the level of business R&D is relatively weak. Increasing the economic benefits realised form our research strengths—and increasing the investment in R&D by industry—are major long-term economic development priorities.

  15.  To this end, a number of important initiatives have been taken, to improve the commercial exploitation of technology and Intellectual Property which reflect the evidence from our research and evaluation of past programmes:

    —  Intermediate Technology Institutes (ITIs)—SE has committed funding of £450 million to three institutes over the next 10 years, focused on the key market sectors of Energy, Life Sciences and Communications Technologies and Digital Media. [14]Led by strong commercial development teams, the ITI's will create a sustainable flow of market-driven technology platforms that can be accessed by both new and existing companies. The ITIs seek to support company R&D and the development of a more market focused and entrepreneurial culture in both the Scottish company base and the science base;

    —  The Proof of Concept Fund, which provides development funding to early-stage ideas within Scottish Universities and Research Institutions that have typically reached patent level and have strong commercial potential. The fund assists researchers to move their ideas from lab to global market place, filling a gap in finance not adequately supported by the private sector;

    —  The RSE Enterprise Fellowship Scheme, which provides financial support to university-based entrepreneurs, to allow them to work full-time on their business ideas. The Fellowships also provide key business training and access to networks of mentors, business experts and professional advisors.

Intensive support to High-Growth Start-ups

  16.  We also maintain a programme of direct assistance to high-growth start-ups. Building on our experience in this area—and the evidence from evaluations—the current strategy emphasises the need for close collaboration with relevant expertise from the private sector, working both to develop the strength of the proposition (to investors) and the development of the management team to take the start-up forward.

  17.  The SE High-Growth Start-up Unit, which operates in tandem with the private sector to provide intensive support to early-stage development of high-growth businesses, seeking to develop 30 new ventures capable of achieving a £30 million valuation within three years of start-up.

  18.  The Hillington Park Innovation Centre, the most advanced "incubator" in Scotland for new high-growth, high-risk, software-based companies with good ideas. Developed in partnership with the private sector, the Centre has 40 tenants, involved in software development, wireless technology, e-commerce and creative industries, providing high-calibre employment for almost 200 people. The Innovation Centre allows small emerging companies access to business support provision, peer level mentoring and visibility to and from major players in their market place.

Financial Support for High-growth Businesses

  19.  A lack of accessible capital is one of the major obstacles to the creation and expansion of businesses and is particularly acute for entrepreneurial start-ups, young or rapidly growing and innovative SMEs. Access to equity finance is critical, and a healthy supply of business angel funding, venture capital and access to stock markets is vital, often more so than access to bank lending.

  20.  While private equity is suited to fill this gap, often the market fails to respond to the needs of new and high growth SMEs because private equity funds have neither the time nor expertise to evaluate and monitor large numbers of small, but potentially viable, investments.

  21.  Given that there is an established private equity industry in Scotland, public sector initiatives are founded in generating additional activity rather than displacing activity already undertaken by the private sector. Intervention seeks to link in and catalyse the private sector rather than create permanent infrastructure within the public sector.

  22.  Following an extensive review of public sector early stage equity policy in Scotland, we have developed a risk capital policy, the main building blocks of which are:

    —  The Scottish Co-Investment Fund, which will allocate £20 million support to private-sector venture capital funds operating in the "equity gap" areas of the market in Scotland; [15]

    —  The Business Growth fund, a £5 million fund which provides loan and equity funding, of between £20,000 and £100,000 to growing businesses throughout the SE Network area;

    —  Small Company Innovation Support (SCIS), which complements the government's SMART grant scheme for investments in innovation, to support the introduction of new products and process—including the market launch;

    —  The Investor-Ready programme, which offers grant support to entrepreneurs to engage specialist advisers to improve the quality of their propositions to potential backers, as well as including extensive information on the fund-raising process in our mainstream business support for start-ups;

    —  Links into the Private Sector, through the continued development of the Business Angels Network and sources data on the Equity Market provision.


  23.  Our ability to co-ordinate policy and match, or balance, policy imperatives to deal with identifiable barriers and market failures is made more feasible because our strategic focus has been clearly set out (Smart, Successful Scotland: Ambitions for the Enterprise Networks). It sets the parameters for economic development in Scotland by connecting the ambitions for business growth with investment in skills and learning.

  24.  The requirement to foster entrepreneurial activity is a key component for us. Most of the activity we are engaged in is devolved to the Scottish Parliament. However, EU and UK programmes and policies are used to shape and guide what we do. A strong framework exists within which we can build operational activity. A critical component of success lies in the amount of effort and research we have done with the sectors to be absolutely clear about the issues being tackled and in making sure we do not presume similarities between each sector's needs where none exist. For example, there is often significant difference between sectors in the area of finance—markets such as that of biotechnology requiring longer term sustained funding to ensure market success.

  25.  Financial incentives for entrepreneurial activity both in innovation in general and more specifically company R&D have been the subject of evaluation and policy change within both the UK and European arenas. Significant focus is now placed on the need to ensure management and work force development accompanies the provision of support to access finance to support entrepreneurial company growth. The ability of a company to strategically position itself and to become "investor ready" requires that there be a good balance of support available. There is an increasing integration of these areas of support ensuring successful overall entrepreneurial company development.


  26.  In terms of the focus of the Sub-Committee's Inquiry, and the questions included in the Call for Evidence, Scottish Enterprise would make the following observations:

    —  the objectives for the above programmes are specified, at the strategic level, in Smart, Successful Scotland. Detailed objectives—as well as the costs and projected benefits of the key programmes—are specified in Scottish Enterprise's annual Operating Plan[16]. A list of the key targets for the Scottish Enterprise Network for the forthcoming financial year is shown in Annex 1.

  27.  Scottish Enterprise policies targeted at Workforce Development are currently undergoing considerable re-appraisal, following publication of the new national Lifelong Learning Strategy by the Scottish Executive. As a result, new programmes directed at this area are under development, including a new Business Skills Advisory Service, designed to help growing businesses identify and address workforce development issues.

  28.  This complements the labour market research function carried out by Scottish Enterprise through Future Skills Scotland. This plays a particularly important role in identifying skills issue in leading clusters, matching labour supply issues with training provision, developing new supplies of skilled employees in areas such as biotechnology and ICT.

  Scottish Enterprise would be delighted to provide further information on the above—including providing details from our research and more detailed descriptions of our programmes.

Annex 1


  "A Smart Successful Scotland" clearly sets out the Scottish Executive's ambitions for the Enterprise Networks (Scottish Enterprise and Highlands and Islands Enterprise). As shown in the table below "A Smart Successful Scotland" has three themes, each with four priorities, which provide the structure for this plan.
Growing Business Global ConnectionsLearning and Skills
Greater entrepreneurial dynamism and creativity Greater digital connectivityImprove the operation of the labour market
More e-businessIncreased global involvement The best start for all young people
Increased commercialisation of research and innovation A globally attractive locationNarrow the unemployment gap
Global success in key sectorsMore people choosing to live and work in Scotland Improve demand for high quality in-work training

  Improving the productivity of Scottish business is at the heart of increased prosperity. Scotland's overall productivity is around 20 per cent lower than the best in the OECD countries, although the best firms in Scotland match the best in the world. This will include stimulating greater investment in innovation and commercialisation, including supporting businesses to launch new products and process improvements and supporting the creation of new spin outs from universities and research institutes.

  To support this, SE will undertake the following key initiatives to support these objectives:

    —  the Intermediary Technology Institutes will move from planning into reality with institutes in Energy, Life Sciences and Communications Technology & Digital Media being set up. These institutes will support the development of market focussed, pre-competitive technology to high growth businesses utilising existing research capacity;

    —  the Co-Investment Fund in partnership with the private sector will provide risk money for early stage, ambitious Scottish businesses. This will complement the Business Growth Fund which will be expanded to include equity financing for smaller businesses;

    —  the Business Gateway will be launched with public sector partners, providing a single access point for all publicity funded business support services. This builds on the success of the Small Business Gateway in offering a quality service to business customers and reducing duplication and customer confusion. Through the Gateway we will support 8,500 business starts.

  In terms of the Targets to be used for the Operating Plan, these are shown below:
Business start-ups assisted8,500
  —high growth175
  —residents from disadvantaged areas 850
Businesses showing improved innovation performance 550
Spin outs (academic and company)35
New products launched and processes implemented 520
Organisations increasing their use of e-business 1,425
April 2003

12   A Smart Successful Scotland-Source: SE Website. Back

13   See Back

14   See<mv3>-<mv-3>shortguide.pdf Back

15   See<mv3>-<mv-3>enterprise<mv3>-<mv-3>scs<mv3>-<mv-3>aug2002.pdf Back

16   For the 2002-03 plan see:<mv3>-<mv-3>home/about<mv3>-<mv-3>se/research-and-publications Back

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