Regulations: friend or foe? Regulation and growth-oriented small businesses

Professor Keith Jackson (Centre for Regional Economic Development) presented this paper that he co-wrote with Frank Peck and Gail Mulvey from the University of Cumbria (Professor Frank Peck was the lead author). Objectives: Examines the extent to which UK growth-oriented small and micro-businesses (SMBs) are impacted by regulations. The paper explores the dynamic relationship between regulatory environment and strategies for small business growth. Attention focuses on how such businesses find out about regulatory requirements and the extent to which SMBs might adjust plans to address regulatory concerns. Prior Work: Major studies have produced results that seem to support the conclusion that regulation can hinder business performance (Djankov et al, 2006). More recently, these studies have been subject to critique (Adomako and Danso, 2014; Wilson et al, 2012). Other research has suggested that regulation also has indirect effects via its impacts on customers, suppliers, competitors, regulatory authorities and infrastructure providers (Kitching, 2008; Gray, 2008; Vershinina et al, 2014). SMBs can use their knowledge of regulations to their advantage (Douglas, 2006). There is now evidence to suggest that regulations can offer competitive advantage to some growth-oriented firms (NESTA, 2011; Wallace et al 2010 and Levie and Autio, 2011). Approach: This research examines the relationship between regulation and growth using eight case studies of growth orientated SMBs in the North West of England. The selected cases are proactive in seeking new market opportunities and innovative in terms of product development and business process. In-depth interviews are conducted with owner-managers to document growth plans and regulatory challenges. Results: The results show that there is a cost impact of regulations on these firms inherent in growth plans. However, product-innovators in particular recognise the benefit of effective engagement with regulatory frameworks as a significant element of competitive advantage. In several cases, regulation appears to have been a support for, or even the basis of, growth for some firms. Furthermore, growth experiences appear to have changed attitudes towards regulation, suggesting a two-way relationship between regulation and growth. Implications: The implication is that for growth-orientated SMBs, not all regulatory changes are viewed negatively and that in some cases, the removal of regulatory barriers could endanger their competitive advantage. Growth firms appear more concerned with inconsistent enforcement of rules rather than with the overall level of regulation. Value: This research contributes towards the debate on the impact of regulations on the economy at the micro level and in so doing highlights important nuances in the relationship between business growth and the regulatory environment