Entrepreneurial Outlook through the Credit Crunch Interviewer: Andrew Kirchner Interviewee: Professor Andrew Burke September, 2008 AK Today I am joined by Professor Andrew Burke who is the Director of the Bettany Centre for Entrepreneurial Performance and Economics here at Cranfield School of Management. Andrew, what impact is the credit crunch having on entrepreneurial activity in the economy at the moment? AB Well the effects are just kicking in now, and really the short answer to your question is that there will be a business shake out among the small firms in the UK and that will be mainly driven by the fact that they will find it much harder to fund their businesses – both in terms of looking for a cash flow and also in terms of funding for growth and what will now kick in to a much greater degree will be the fact that the consumer market is going to slow down, so we are in danger of going into a recession, if not more and therefore they are going to be squeezed on two fronts – both internally weakened and a tougher market to work in. AK How bad are things getting now? AB They are quite severe, I mean I think the first thing that we have got to appreciate is that the entrepreneurial sector has been operating in a very positive environment for pretty much the last fifteen years. If you go back to the early 90s you are at the beginning of a major technology boom and we had a period where there was cheap money, both in terms of price, greater availability of finance, growing internationalisation of markets – so a whole bunch of international markets opened up – increasing deregulation, cheap supply of imports, outsourcing opportunities and international markets to sell sophisticated goods where there weren’t any local competitors. And that all is now changing. The technology boom continues, which is the good news. The downside is that the international markets now are themselves growing, raising demand for commodities – so starting to push up the cost of input prices for companies, we are seeing it in commodity prices, the price of oil and so on. That is putting inflationary pressure on as well, which in turn is pushing up the cost of finance. Alongside that, you have got the housing collapse in the US, which has fuelled the credit crunch – so we are entering quite a difficult period and in parallel with all that we have now got the global warming penalty and the penalty is the fact that basically we have got to cut emissions and that is equivalent to technology almost going back in time because its raising the costs of doing business. So we are going into a very tough environment. AK With all these negatives, is there anything that we can be positive about? AB Well first of all I don’t want to overstate the negativity – we are not in a catastrophe situation. Most business sectors are quite robust, however, there is an oversupply of businesses in a lot of business sectors. The archetypal small business sector which is a mature market, selling domestically – well there is going to be some contraction there. But if you look at the more entrepreneurial markets, a lot of these companies were set up looking to sell or looking to exploit strategies which are on five, six, seven year horizons and a lot of the visions and strategies for those businesses are still valid. I think what you will find is that there is a lot of good growth opportunities, first of all the growth in the international market means that the ventures that are internationally focused will benefit. The global warming, while it creates a cost problem at the same time it opens up opportunities to create products and services that actually can work in that sector. The technology boom is continuing – it hasn’t stopped, if anything it is not so much the importance of new technologies, it’s the technologies diffusing to a stage in the market where they become commercial and so a lot of the benefits of the technologies that were being launched in the late 1990s are actually only now having real commercial benefits. There are a lot of sectors out there that are still quite robust. AK Andrew, thank you very much for sharing your views. AB Thank you.