A future for small business? Prospective scenarios for the development of the economy based on current policy thinking and counterfactual reasoning

Futures 37 (2005) 777–794 www.elsevier.com/locate/futures

A future for small business? Prospective scenarios for the development of the economy based on current policy thinking and counterfactual reasoning Andrew Atherton Enterprise Research and Development Unit, Lincoln Business School, University of Lincoln, Brayford Pool, Lincoln LN6 7TS, UK Available online 19 March 2005

Abstract Scenarios represent future possibilities or descriptions of ‘what might be’. This paper generates a series of possible futures based on an identified policy priority, namely the encouragement of increased levels of small business activity. Counterfactual thinking is used to challenge this policy objective and to formulate alternative possibilities. Specific consideration is made of the nature of the future economy in terms of business linkages and market integration, as are the likely strategic responses of businesses and government. Eight scenarios are developed based on these drivers of change in economic structure and business activity. Data on the world economy are then applied to 19 developed and developing economies to test the scenarios. How these ‘externally generated’ scenarios can be applied to and made relevant to businesses, and in particular smaller enterprises, is examined, as are the broader implications for the future nature and structure of economic activity. q 2005 Elsevier Ltd. All rights reserved.

1. Why consider small business futures? Scenarios provide an established and validated means of considering the future and its distinctive possibilities. Proponents of scenarios development indicate that it is ‘an invaluable tool’ and that it provides ‘a capacity to manage the unknown challenges of the future’[60]. They argue that scenario building is ‘an essential element for working on, and creating, alternative futures’ and ‘an important part of socio-economic analysis’[63]. Such approaches to futures thinking are well established in practitioner and policy communities [61] and have been used with reference to a broad range of issues and phenomena, E-mail address: [email protected]. 0016-3287/$ - see front matter q 2005 Elsevier Ltd. All rights reserved. doi:10.1016/j.futures.2005.01.002

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including: the global economy [64]; community development [4]; urban planning [3]; technology forecasting [6]; the development of information and communication technology [69] economic sectors [49,14]; and geopolitical issues [28]. The potential value of futures thinking has been recognised by policy-makers and can be seen in aspects of policy-making [18]. There appears, therefore, to be public as well as private sector familiarity and engagement with future scenarios development as a tool for policy formulation and consideration. Indeed, it has been noted that ‘scenario planning is enjoying a boom period’ [62]. Smaller businesses, i.e. enterprises with fewer than 251 employees, account for almost all businesses in developed and mature economies and generate the majority of private sector employment and output [43]. In most newly industrialized and developing countries, smaller enterprises account for a majority of enterprises and for a significant share of private sector economic activity [70] or are recognised as central to the future development of the economy [37]. Successive studies, starting from the work of Birch [5], have attributed the majority of new jobs created in many developed economies to small businesses and new ventures [7,25,29,31,35,53,13]. Smaller enterprises have also been associated with high levels of economic adaptability and flexibility, and are seen as creating economic opportunity through innovation [43]. In spite of the importance ascribed to small businesses by governments and analysts [21], there has been little consideration of their future development and the potential implications for policy. Indeed, in a review of a recent special edition on small business futures, Fuller [24] notes that what is lacking in the recent literature is the identification and consideration of future scenarios focused on small businesses and their development. The extent to which scenarios thinking has been applied to small businesses and their future development is limited (the work of Fuller is an exception [24,58,23]) and there are few examples of the application of futures thinking to the development of small businesses within a policy framework [54].

2. Policy aspirations and counterfactual thinking as a means of developing scenarios Many established scenarios development methods use groups, typically of peers or experts, to identify future possibilities and their drivers and to generate and assess scenarios [60,63,61,4,3,30]. Such methodologies bring together and synthesise multiple views and perspectives based on the personal, and hence subjective, opinions and judgements of those involved [42]. Scenario planning based on active consultation [50], brainstorming [30] and engagement of actors [60,63], therefore, embraces multiple ethical, philosophical and conceptual stances and values. Such approaches raise a hermeneutic challenge, if we define hermeneutics as the understanding of understanding (as Geertz [26] did so), in that they incorporate multiple subjectivities based on disparate and potentially non-commensurable belief and value systems. As Tilley and Fuller [58] have noted: “.there is little by way of explicit futures epistemology. Where rigorous principles are identifiable in the literature, they represent a wide range of epistemological positions.” Scenarios, in consequence, can be seen as shared constructs that emerge from a synthesis of different positions and stances; in large part reflecting their emergence and use as a means

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of generating shared views about possible futures and hence as a collective or organisational learning dynamic [64]. They operate, in other words, as ‘sensemaking’ strategies [66], rather than as factual or deterministic accounts of actual futures. The non-predictable, sensemaking nature of scenarios appears to be accepted in broad terms, although Slaughter [50]14 notes: “There are basically two views about [prediction] in the field. One, held most strongly by Bell (1997), is that all forward-looking references involve prediction in some form. I take a different view, which I believe is held by a majority, that prediction in social systems is neither possible nor desirable.” Indeed, Slaughter noted that scenario development embraces the ‘irreducible uncertainty’ of the future. 2.1. The pursuit of policy goals as a means of selecting a preferred future scenario From a policy-making perspective, however, the future, in terms of aspirations and preferences for particular outcomes, is not irreducible. Government decision can be seen as the pursuit of a desired future [38], and hence the prioritisation of a specific scenario as the basis for public allocation of resource and intervention in the economy and society. From this perspective, the focus shifts from questions asking what the future might look like as a planning or sensemaking exercise to specific considerations of how particular priorities and interventions will ‘play out’. It contextualises thinking about the future in stated policy objectives and intentions and in doing so points to likely, possible and preferred outcomes. This paper starts from the premise that desired policy goals and outcomes offer an opportunity to generate possible future scenarios that consider and hence evaluate specific government concerns and strategies. This approach to scenarios formation recognises the possibility that there is a preferred future, at least for part of the policy-making and implementation community. It is this preferred future, in terms of the implications of current policy statements and plans, that provides an initial consideration of future possibilities for the economy and businesses. 2.2. Counterfactual thinking as a means of considering alternative futures Counterfactual thinking has been developed to gain insight into mental models and cognitive processes, including: mental norms [47]; alternative schematic representations [34]; and strategies for formulating and considering alternative scenarios [41]. Analyses of counterfactuals within the cognition literature have focused especially on hindsight, or post hoc, rationalisations of previous decisions and actions [40,48]. They have been used, in other words, to consider ‘what might have been’ [10]. Applications of counterfactual thinking can be seen in many aspects of economic, political and social analysis, including: project assessment and consideration [15,39,65]; evaluations of economic reform and restructuring [11,17]; macro-economic modelling [16,44]. The technique has been used in several academic disciplines, in particular history [55,8]. Counterfactual approaches have generated distinctly different scenarios to test project impact and outcomes and to consider alternative approaches to planning [2]. Counterfactual reasoning has also been used in considerations of the future [56,45]. Counterfactual thinking is used in this paper to establish a series of polarised future possibilities, as distinctive and markedly different ‘hypothetical states of affairs’.

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The technique is deployed, as such, to generate a collection of distinctive future scenarios that are binary in nature, in that each possible future is linked with a diametrically opposed possibility. A focus on polarisation and the generation of opposite, and hence opposing, future possibilities represents one way in which counterfactual thinking can be used. The approach has been used extensively in many fields (as noted above) to identify alternative paths and outcomes that are not necessarily polarised, but that represent other possibilities. Counterfactual thinking seeks out alternative paths and outcomes. The application of counterfactuals to futures thinking, therefore, can generate multiple alternatives, many of which may be subtle and nuanced and only some of which are diametrically opposed. The public policy context for the generation of small business scenarios suggests a benefit of futures thinking is to construct and imagine the most disparate and different possible outcomes. By identifying extremely variant futures, via polarisation, decisions by policy-makers on where and how to intervene can account for the possibility, or risk, that the outcomes from government action and expenditure may be antithetical to the desired outcomes. The use of polarised approaches to counterfactual thinking is particularly evident in economic analysis of public intervention, via techniques such as cost-benefit analysis and game theory. This approach to counterfactual thinking as polarisation recognises that policy development and implementation is unpredictable in impact and result [46] and, as such, future economic structures and dynamics are presently unknown and uncertain. The broad definition of the polarised approach to counterfactual thinking adopted in this paper (adapted from [9]) is that it is: ‘a statement concerned with an hypothetical future state of affairs that runs counter to established views and objectives.’

3. Two future possibilities for the UK business population as a starting point The future development of the economy and of the dynamics of business activity can be considered from multiple perspectives and using different approaches. In this section of the paper, a particular focus is placed on the structure of a future economy and in particular on the relative importance of small and large businesses. Such a distinction between small and large is used to reflect the distinctive natures of different sizes of businesses [67], in terms of management and operation as well as in terms of the implications for the underpinning nature of competition and economic behaviour that is likely to emerge. As has been noted, smaller business are associated with high degrees of adaptability and responsiveness, which in turn points to a different basis for business activity to an economy in which large companies dominate and compete on the basis of economies of scale (c.f. [27] for considerations of the limitations of securing economies of scale by increasing market share). 3.1. The emergence of a ‘small business economy’ Many governments, in developed and developing nations, view the growth and development of small businesses as integral to economic development and prosperity. In the UK, for example, the Small Business Service has as its objective that the UK becomes

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the ‘best place in the world to start and run a business’ [52] by increasing the number and quality of business starts, as well as encouraging greater rates of survival amongst new ventures and growth by established small and medium enterprises. In similar terms, the EU Green Paper on Entrepreneurship proposes that Europe should become ‘more entrepreneurial’ by encouraging more people to start businesses and by enabling and supporting the growth of existing smaller enterprises. Similar policy statements supporting the expansion of the small business sector can be seen in many other countries (e.g. Australia [33]; China [51], and Japan [68]. Integral to government promotion of smaller businesses and laws and policies to promote business start-up and SME growth and expansion is a desire to increase the significance of these enterprises within an economy. A likely outcome from successful achievement of these policy goals will be an absolute increase in the number and economic importance of smaller businesses. A growth in the importance and relative share of economic activity by small businesses, therefore, is a starting point for future scenarios of economic development. It represents a preferred future for government agencies and other entities that support small businesses (a broad outline of such a ‘small business economy’ is included in Table 1). 3.2. The counter-factual future scenario: emergence of a ‘large business economy’ The counter-factual state to a future economy dominated by small businesses is a growth in the importance and significance of large companies. Larger businesses account for the majority of private sector employment and turnover in this scenario, and as a result become the basis for economic activity and growth. As large companies increase their share of economic activity, a probable outcome will be that competition is based increasingly on securing advantages from size, in particular gaining and exploiting economies of scale. A likely result will be that smaller businesses will be less able to compete and will be pushed out of markets and activities by larger companies seeking greater influence and control over customers and suppliers. The number of SMEs will decline, and those that remain will become dependent upon larger businesses or will become isolated within localised economies and marginalised in smaller and less attractive markets that are not of interest to large companies. These changes may lead to new forms of economic flexibility, for example in contractual obligations and supplier prices, as has been seen to some extent in the case of the zaibatsu in Japan [59]. Producer power may concentrate in the hands of a few, leading to oligopolistic conditions and nearmonopoly market dynamics.

4. Integrated or isolated? Connectivity as a critical driver of business futures Integration within a local economy and with other economies has been identified as a critical aspect of the development and emergence of ‘well founded’ regions and local economies and business groupings [12,20]. Related to this, assessments and analyses of globalisation have focused on the integration of markets, and on the implications of increased economic ‘connectivity’ for business strategy. Part of this debate has focused on

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Table 1 Outline comparison of small business and large business futures Small business economy

Large business economy

Summary data

4C million small businesses Accounting for 2/3 or more of private sector employment Generating more than 60% of private sector GDP

!3.8 million small businesses Large companies account for 2%C of all businesses Accounting for 2/3 of private employment And O60% of GDP

Nature of the small business sector

Highly diversified Local economic actors and global players Dominating most aspects of economic activity

Dependence upon larger OEMs and supply chains Small businesses more focused on local economies

Nature of the economy overall

Less concentration of ‘seller power’ Restructuring away from industries with significant economies of scale

Greater importance of a small number of large businesses Increased ‘seller power’ Competition between ‘giants’ to win market share

Sources of competitive advantage

Highly adaptable and flexible High levels of competition and innovation Reduced dominance of markets by a small number of businesses

Economies of scale Ability to access resources Greater geographical scope Emergence of ‘giants’

Issues and developmental challenges

Greater ‘churn’, due to more start-ups and greater competition Need for new forms of resource provision to fund and enable growth Interactions between businesses, government and society fragmented

Risks of reduced competition leading to lower levels of innovation Increased focus on renewal and entrepreneurship in large companies Larger companies seeking out protection and special privileges from government

whether the geography of competition and market concentration is genuinely international or whether levels of cross-border market integration vary [36]. Such considerations suggest a ‘mixed’ model of market integration, in which global and local businesses co-exist and compete. Different levels of international engagement amongst businesses also indicate a need to look in more detail at interactions where the ‘localization of competitive advantage’ is a result of the ‘globalization of competition’ [20]. The patterns and dynamics of market integration, therefore, promise to be complex, variable and difficult to predict in generalised terms. 4.1. The emergence of a highly connected future economy The thesis that there will be high levels of future economic integration rests on the growth and expansion of extensive linkages and inter-dependencies within markets as well as between industries, sectors and business groupings. In an integrated economy, businesses will be involved in multiple networks, of differing geographical scope from

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local through to international and global. Interactions between large companies and smaller businesses will be commonplace, incorporating a broad range of different relationships and transactions. One probable result from the emergence of an integrated economy will be wider sensitivity to economic events and fluctuations that are distributed through, and hence amplified by, the extensive networks and linkages that enable and underpin integration and connectivity. Indeed, the internationalisation of transactions and interactions that will occur within an integrated economy is likely to lead to rapid ‘knock-on’ effects from events and occurrences in particular locations or situations. The overall result, therefore, is likely to be cyclical fluctuations in economic and business prosperity and wealth, with highly networked and interactive businesses being sensitive to external events. 4.2. Business isolation and dis-connection as an alternative condition The counterfactual outcome to an integrated economy is one that will be more isolated and less connected. This thesis will lead to a future world economy in which there are many local economies and markets, with little linkage between each other and localised rather than cross-border business-to-business networks. Such an atomisation of economic exchange and interaction is characterised as negative and has been identified as a constraint on economic growth in less wealthy nations: ‘Developed markets, more global, inclusive, and integrated, offer more opportunity and choice. Underdeveloped markets, more likely in poor countries, are more likely to be local and segmented’ [70]. The fragmented economy scenario need not be a negative future possibility for all businesses, however. Within a developed economy and in particular in prosperous regions and localities, strong local networks combined with local economic opportunities may provide an endogenous growth framework that can sustain the development of businesses. Indeed, such a fragmented economy may offer high levels of protection against entry into such a market by non-local competitors. A prerequisite for this positive interpretation of a future economy that is less connected is that the local economic condition and endowment is healthy and wealth resides within the local economy. This type of fragmented economy, therefore, may only be relevant in certain localities and, in itself, implies that the exclusion of less developed and less prosperous nations, regions and localities will continue and may increase. This derivation of a fragmented, less connected, economic future can be conceived of as ‘gated’ prosperous local economies dispersed amongst poorer, subsistence economies. 4.3. ‘Defensive’ and ‘embracing’ approaches to connectivity: incorporating business and government policy stances and strategies into the framework Responses by government as well as businesses to different levels of connectivity may vary, depending upon the perceived benefits and advantages to enterprises. Alternative futures may lead to conclusions that connectivity is either a positive or negative condition for business activity. Positive conceptions will lead business decision-makers and policymakers to embrace future conditions and levels of connectivity. Alternatively, negative perceptions of particular forms of connectivity will result in more defensive responses to

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future conditions. A third, and key factor, therefore, in developing future scenarios of the economy—and applying these constructs to small businesses—is to consider the responses by the key economic and political actors and influencers to levels of integration and disconnection. In particular, the scenarios developed in this paper will examine the extent to which responses to possible futures are either ‘embracing’, i.e. engaging positively, or ‘defensive’, i.e. seeing a particular scenario as a threat or negative condition.

5. A typology of alternative futures for small business The framework constructed so far in this paper has identified three key drivers of future economic and business activity that are of particular relevance: (I) the share of economic activity between large and small enterprises; (II) the extent or lack of connectivity in the economy, both nationally and globally; (III) whether responses to connectivity by economic and political actors will be embracing or defensive. Combining these three drivers of future economic structure and business activity generates eight distinctive permutations or ‘possible futures’ (Fig. 1 below). Each scenario is based on the following conditions [19]: 1. The future distribution of economic activity between large and small businesses: (i) a ‘small business’ economy in which economies of scale in production and competition are neutralised or counteracted by the adaptability of smaller businesses; (ii) a ‘large business’ economy in which larger companies dominate markets and secure greater market share through economies of scale, marketing, and political linkages. 2. The extent of economic connectivity and integration, within and across national economies: (i) high levels of economic integration and business connectivity at all

Fig. 1. Map of possible future scenarios for business in the UK.

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geographical scales; (ii) economic fragmentation and isolation combined with a lack of connectivity between businesses. 3. The response, by government and business, to economic integration or dis-connection, in terms of: (i) embracing approaches, i.e. positive engagement with emergent patterns of connectivity; (ii) defensive reaction to future forms of connectivity. The eight scenarios represent alternative, and in most cases, significantly different possible economic futures. Each, however, does not represent a desirable, or undesirable, future per se. Instead, the scenarios can be considered possible outcomes or conditions that will have both positive and negative effects, implications and outcomes. They represent a range of possible contexts and environments within which businesses may find themselves. Each scenario is summarised below: 5.1. Global flexible specialisation A future economy dominated by small businesses, and hence by small business ‘ways of doing business’, where markets are connected and small businesses trade without regard to administrative, political or market boundaries. This connected and highly networked future is embraced by businesses, leading to the identification and seeking out of competitive advantage based on comparative advantage and hence to high levels of firm specialisation within dense and multiple networks. Such a scenario is likely to be based on the emergence of clusters of international and global competitiveness that deploy local and embedded relations and trust to gain advantage. It will also result in high levels of product and service differentiation, and hence high levels of consumer choice and purchasing power (due to ‘seller power’ being dispersed amongst many businesses, mainly small, in many locations). Global flexible specialisation is also likely to lead to high levels of investment, by businesses and probably also by governments and multi-lateral institutions, in communications and mobility infrastructure in order to reduce transaction costs and so take advantage of the internationalised nature of business interaction and the diversity of choice, location and activity. 5.2. Local ‘boosterism’ A more defensive approach to a future small business economy where markets are highly integrated will result in low or minimal levels of business propensity to collaborate This future is predicated on economic conditions within which levels of competition are high and ‘cut-throat’ as businesses adopt defensive responses to integration, leading to vulnerability for individual firms and confrontational business strategies. Price wars, customer incentives and tie-ins and supplier ‘lock-in’ will be likely dominant features within this scenario. Politicians, particularly in elected systems, are likely to respond to high levels of competitive turbulence and business uncertainty by seeking to support and protect businesses, both in order to ensure that employment levels are maintained within local constituencies and to avoid the adverse economic impacts of lower profitability (as a result of price cuts) and higher levels of firm closure (due to more confrontational business competition).

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5.3. Diverse small economies Should the future see the emergence of an economy within which small businesses dominate, but markets are less connected and business interactions more localised than globalised, then a likely outcome will be the emergence of many local economies. Embracing this future could lead to local attempts, by businesses and government, to encourage greater levels of economic activity within each economic unit. Under such circumstances, a local regime of taxation re-distribution may emerge that penalises consumers and privileges businesses. Re-distributive mechanisms are likely to be egalitarian, in that preference for one or some businesses over others risks creating unfair advantage within the local economy. The constraints of operating within localised and fixed economic areas and environments may lead to efforts to encourage co-operation and interventions to punish or minimise high levels of competition, particularly those seeking to gain short-term or non-sustainable competitive advantage over other businesses. This scenario may also lead to greater awareness of the need for sustainability of resources. 5.4. ‘Niche ecology’ economy In a future in which small businesses dominate and low levels of economic integration result in defensive responses, local economies are likely to break down into smaller, less connected units as local communities seek to ‘look after their own’. Within this scenario, businesses would manifest defensiveness in terms of a lower tendency and willingness to co-operate and by attempting to protect local markets and customers. Localised Darwinian (i.e. ‘survival of the fittest’) competition is likely to emerge, creating multiple unconnected niches. An additional likely outcome from the emergence of many localised economic units is disparity between these entities, leading to regional divergence within countries and increasing disparity of income between rich and poor areas. Local economies with low levels of economic activity, competitiveness and endowments would likely become ‘locked-in’ [1] to slow rates of growth or even decline and to forms of autarky. This could lead to social unrest and turbulence. 5.5. Global corporate economy A future economy that is dominated by large companies that operate across nations, and that is supported and encouraged by government and embraced by businesses, will generate global or at least globalised markets. Such a scenario will lead to the concentration of producer power in a relatively small number of large companies that will adopt multiple strategies in order to gain competitive advantage. These may include an increased focus on innovation in order to generate improved products and services and enhanced choice for customers, should competition be high. It may also lead companies to seek economies of scale through greater market share. Government’s role is likely to focus on attempts to improve interaction and exchange across borders and to seek to regulate adverse impacts of business activity or mitigate negative externalities. Small businesses are likely to become of declining importance as larger companies expand into markets that previously would have been considered of marginal interest and return. Those small

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businesses that survive and succeed in this scenario are likely to be highly dependent upon larger companies. 5.6. ‘Strategic’ state support Defensive responses to the domination of future economic activity by large businesses operating across connected and integrated markets will lead to attempts to secure advantage by gaining additional resources and protection. Government is more likely to support individual large businesses, and possibly key sectors (especially if they are seen as under competitive threat). In developing and industrialising economies, defensiveness may take the form of strategic support for and allocation of resources to large companies closely connected to the state, as was seen in Japan and Korea in the second half of the twentieth century. In both developed and developing countries, the likely outcome will be the seeking out of forms of protection of the domestic market, based on legislative measures, exploitation of tacit socio-cultural differences, and collusion between domestic companies. It will also lead in certain cases to the promotion of exports of goods and services and to support for entry into other markets. Strategic state support is likely to lead to a growing focus on comparative advantage (i.e. to exploit all forms of trading advantage) and to protecting major domestic enterprises. In small and relatively under-developed economies, this will lead to lower levels of competitiveness and efficiency. In larger domestic markets with competitive internal markets and a diversified economic structure, this may lead to the emergence of national ‘champion’ businesses that can sustain themselves in their home market, and may be able to compete in other markets. 5.7. Corporate ‘states and fiefdoms’ Embracing a future economy that is dominated by larger businesses, but that is less connected in terms of markets, will lead to the emergence of companies that dominate particular markets and localised economies. These ‘fiefdoms’ will emerge as a result of a lack of connection, resulting in and perhaps emerging from the formation of barriers to market entry for firms that wish to enter new markets. Increased costs of business expansion, whether into new geographical or consumer markets, will allow locally dominant large companies to influence and ultimately control local economies and, in doing so, create local monopolies or oligopolies. Government response may be to support these local and niche ‘giants’ and to seek to minimise adverse externality costs, such as environmental damage or social problems. Public intervention may also attempt to counteract reduced domestic market connectivity by seeking means and strategies to encourage and support trade and business activity. This will, however, lead to debates as to how to target and allocate such funding, as it will be finite and so subject to rationing. 5.8. State protectionism A more defensive response to a less connected economy that is dominated by larger companies is likely to lead to government intervention to protect domestic markets and

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domestic businesses. This will result in further fragmentation of particular markets into a series of protected national ‘sub’-national markets. It may also lead to localisation and regionalisation within nations, particularly if regional and local government is strong or independent. In both instances, the reduction of market scope may mean that large companies that dominate particular markets may not be able to sustain profits and so will either reduce in size or wind up. The net result may be a declining economy that comes to resemble the niche ecology economy scenario, albeit with some continued dominance by larger companies that adapt (for example, through diversification or horizontal integration, or via innovations in client relationship management and marketing).

6. Extending the analysis to the current world economy Although the scenarios and underpinning analysis have focused on the future, international comparisons of economic structure and activity based on existing data provide a means of assessing national difference, as well as an opportunity to test the conceptual framework. Using World Bank data [7] on trade balances [22] and levels of foreign direct investment (FDI) [71], an indicative picture of business integration and economic integration can be developed. These two indicators were used because they provide an overview of overall trade performance, i.e. commercial interactions across markets, and the perceived attractiveness of an economy for external investors, i.e. the amount of external money being committed to an economy by others. The two data sets were compared with the relative distribution of small and medium enterprises in relation to large businesses (in this case companies employing 500 or more staff), using data developed by the OECD [43]. The results are summarised in Fig. 2, using a three-variable plotting format. Levels of FDI are reflected in the size of the ‘bubble’ for each of the countries, and trade balance was plotted on the y-axis. The graph uses available data relating to the two primary criteria used to develop the future scenarios, namely: the relative proportions of large and small businesses in an economy, and the extent of business and trade integration [57]. This graph was then analysed in terms of the framework developed for future scenarios for businesses (Fig. 1). Fig. 3 re-frames the international comparison based on the key parameters used to develop the scenarios, and hence relates the data to the eight identified futures. This was achieved by comparing individual country figures with the mean for all three variables, namely: percentage of businesses (employing fewer than 500 staff in this case); trade balance (export payments less import payments) as a percentage of GDP; and foreign direct investment in millions of dollars. A qualitative assessment approach was adopted in order to integrate the economic integration indicators (trade balance, FDI flows), with each country assessed in terms of the size of the trade balance (both positive and negative) and levels of FDI (with reference to GDP as well as via comparison with other countries). Overall, countries were rated on the following scale across both indicators: very high, high, above average, average, below average, low and very low. Countries were deemed ‘more integrated’ when rated very high for both trade balance and FDI flows. Conversely, countries were considered ‘less connected’ when both figures were

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Fig. 2. International comparisons of SME populations, National Trade Balances and Foreign Direct Investment. Sources: OECD SME Outlook 2002; World Bank World Development Report 2002.

low (although overall levels of trade were also considered in cases where the trade balance was in balance). Distribution across the framework was relatively dispersed, with countries demonstrating a broad range of positions, albeit with few placed in the bottom left quadrant (i.e. large

Fig. 3. Multi-national mapping of selected countries against the scenarios framework.

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business-less connected economies). The U.S. appears, based on these indicators, to be both dominated by large businesses, in comparison with other countries, and highly integrated with other economies (in most part due to high levels of FDI). In broad terms, four general groupings could be identified amongst the other businesses: 1. Countries with relatively large small business populations and high trade balances and levels of foreign direct investment (Belgium, Sweden). 2. Countries with above average figures for all three indicators, i.e. more small businesses and higher levels of integration (Finland, France, Italy, Switzerland). 3. Countries with low levels of connection, as measured (Australia, Austria, Czech Republic, Mexico, Poland, Spain, Turkey). 4. Countries with relatively high levels of integration, as measured by the two selected indicators, and a proportionately bigger large business population (Germany, Norway, UK and to some extent Denmark). Countries with above average figures in terms of small business population, trade balance and foreign direct investment flows appeared to possess the characteristics and features of ‘Global Flexible Specialisation’, i.e. they competed internationally and had high levels of small business involvement in the economy (groups 1 and 2 from the list above [32]. Economies with low levels of international investment and trading performance and relatively high or average small business populations reflected the ‘Diverse Small Economies’ scenario, in that they tended to be smaller economies that were less integrated into the international economy than other nations (group 3). And countries with a higher proportion of large companies and high foreign direct investment can be associated with the ‘Global Corporate Economy’ scenario (group 4).

7. Scenarios as a ‘starting point’: embedding futures thinking in smaller businesses Two broad approaches to futures thinking via the development of scenarios can be discerned in the practitioner and research literature. The first focuses on scenarios as a planning and organisational learning ‘tool’ or method. Organisationally-specific approaches embrace the shared considerations and concerns of individuals and groups working within or involved in the same organisation or community [60,63]. The technique, as such, has tended to be used as a developmental process of formulating views on the future by individuals who are both participants in the exercise and recipients of the outcome. An alternative approach is to develop scenarios that relate to a specific issue or condition rather than to a particular organisation [49,14,17,16,44]. Scenarios developed in this way provide a future context for actors and organisations, as can be seen in this paper. In part, this approach reflects the use of a publicly stated policy objective as a starting point for the scenarios. However, there are two additional reasons for this concern with developing a broad characterisation of possible futures. The first is that small businesses often lack the resources and time to engage in structured futures planning via scenarios development (in part due to a tendency not to formalise management and planning activities). This paper, as such, builds on the small number of previous attempts to map

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a possible future from the perspective of and with the intention of informing management and decision in the smaller business [23]. A second reason for this distinction, or separation, is the focus on broader notions of economic structure and its development and change within the paper itself. The scenarios explore the future nature of the economy rather than the particular concerns, prospects and conditions of a particular business, either large or small. There is, as a result, a need to consider how the scenarios can be related to and made sense of in terms of the particular circumstances of a business. The specific conditions and context within which a business will find itself in relation to a scenario cannot be established, in detail at least, from consideration of a scenario in its current form. Instead, the scenarios developed in this paper represent a starting point for future thinking within businesses, in that they will only be useful and useable if made relevant by assessment of their specific significance and implications for a business and its staff. The scenarios point to the need for businesses to consider not only which scenarios are possible or even likely, but also to consider the strategic implications for the business. This, in turn, supports views that scenarios development as a form of futures planning leads to and requires organisational learning [63,61], whether ‘internally generated’ or externally sourced.

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