FACTORS AFFECTING THE DEVELOPMENT OF MICROCONSTRUCTION ENTERPRISES

WILLS THOMAS

September 2007

FACTORS AFFECTING THE DEVELOPMENT OF MICRO-CONSTRUCTION ENTERPRISES

WILLS THOMAS

A thesis submitted in partial fulfilment of the requirements of Glasgow Caledonian University for the degree of Doctor of Philosophy

School of the Built and Natural Environment Glasgow Caledonian University

September 2007

Abstract

ABSTRACT

Micro-construction enterprises (McEs) make up 98 percent of all construction enterprises in UK; they employ about 60 percent of the total industry workforce and contribute about 40 percent of total turnover of the UK construction industry. These facts highlight the importance of McEs to the UK construction industry. However, analysis of McE centric records revealed that their overall performance has been rather poor, as they have been plagued by high attrition rates and low survival rates of young McEs. The situation is further exacerbated by the decreasing profit levels of McEs. This highlights that their might exist certain vitiating factors which inhibit the McEs from performing to their optimum capacity thus resulting in the lamentable scenario which the McEs find themselves in. The research methodology adopted for this research was of a hybrid kind with an eclectic mix of approaches and methods. Appraisal of relevant literature revealed that previous McE centric research was extremely scant. This instigated a pilot opinion survey (conducted using two different sets of questionnaires that were sent out to McE owners, government officials and main-contractors representatives) and a short-term shadowing exercise (involved active shadowing of McE owners). The main data collection stage of the research was carried out in two phases. As part of the first phase 60 interviews were carried out with McE owners to decipher their skills sets, inclinations, and motivations. The secondary phase involved ethnographic fieldwork on three different construction projects.

The findings of the research concluded that there exist a set of factors which inhibit the McEs from performing to their optimum capacity. These factors were found to have both endogenous (internal) and exogenous (external) causal sources. In total eight endogenous factors were identified which were further segregated into owner and business centric sub-factors. The owner centric factors were McE owners propensity to take risks; their willingness to innovate; their education level; their inclination to employ external consultants; their intention to attend training programmes; and their motivation to start the business. The business centric factors

were business strategy and growth. Altogether six exogenous factors were identified namely: absence of written contract, collusion, conflict, information asymmetry, payment delay, and changes in taxation policies. These factors could be further used by McEs as a checklist while setting of on the pursuit of achieving growth.

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Table of content

TABLE OF CONTENT

ABSTRACT....................................................................................................................................ii TABLE OF CONTENT ...............................................................................................................iv LIST OF TABLES .....................................................................................................................viii LIST OF FIGURES.......................................................................................................................ix LIST OF ABBREVIATIONS.....................................................................................................xiii Acknowledgements......................................................................................................................xiv Declaration....................................................................................................................................xv 1. Introduction ..............................................................................................................................1 1.1. Background..........................................................................................................................1 1.2. Aim and Objectives of the research......................................................................................4 1.3. Structure of the thesis ..........................................................................................................6 1.4. Summary...............................................................................................................................7 2. McEs: an overview ...................................................................................................................8 Chapter 2.........................................................................................................................................8 2.1. Introduction .........................................................................................................................8 2.2. What is a micro-enterprise?.................................................................................................8 2.3. The inadequacy of classifying micro-enterprises under the label of SMEs........................9 2.4. Why are micro-enterprises vital to the European Union economy? .................................14 2.5. McEs in the UK construction industry..............................................................................16 2.6. Analysis of McE statistics ..................................................................................................17 2.7. Role of McEs in the UK economy.....................................................................................24 2.8. Summary ............................................................................................................................26 3. Business success and failure ....................................................................................................27 Chapter 3.......................................................................................................................................28 3.1. Introduction........................................................................................................................27 3.2. Business success and failure an overview.......................................................................31 3.3. What is business failure?....................................................................................................33 3.4. How to assess McE failure?...............................................................................................36 3.5. Causes of small business failure........................................................................................40 3.5.1. Endogenous factors.....................................................................................................48 3.5.2. Exogenous factors ......................................................................................................51 3.6. Summary.............................................................................................................................53

4. Endogenous factors...................................................................................................................55 4.1. Introduction .......................................................................................................................55 4.2. Are McE owners entrepreneurs?........................................................................................56 4.3. Owner centric factors.........................................................................................................67 4.4. Behavioural factors ...........................................................................................................68 4.4.1. Entrepreneurial behaviour approach...........................................................................69 4.4.2. Management competency approach............................................................................76 4.4.3. Integrated approach.....................................................................................................79 4.4.4. Key behaviour centric factors ....................................................................................86 4.4.5. External factors and their influence on owner behaviour...........................................92 4.5. Skill centric factors ............................................................................................................95 4.6. Generic/Miscellaneous factors...........................................................................................99 4.7. Business centric factors ...................................................................................................100 4.7.1. Strategy ....................................................................................................................101 4.7.2. Business growth .......................................................................................................105 4.8. Summary...........................................................................................................................116 5. Exogenous factors...............................................................................................................118 5.1. Introduction .....................................................................................................................118 5.2. Absence of written contract .............................................................................................120 5.3. Collusion..........................................................................................................................121 5.4. Conflicts ...........................................................................................................................123 5.5. Information asymmetry and distortion.............................................................................127 5.6. Payment delay..................................................................................................................129 5.7. Changes in tax regulations ..............................................................................................131 5.8. Summary...........................................................................................................................134 6. Research methodology...........................................................................................................136 6.1. Introduction .....................................................................................................................136 6.2. Ethos of the research philosophy ....................................................................................137 6.3 Assumptions.......................................................................................................................139 6.4. Ideological perspective.....................................................................................................144 6.5. Research approach ..........................................................................................................149 6.5.1. Qualitative: strengths and weaknesses.....................................................................149 6.5.2. Quantitative: strengths and weaknesses....................................................................150 6.5.3. Which approach to use qualitative or quantitative?...............................................151 6.6. Research methods ............................................................................................................153 6.6.1. Methods employed to answer the research questions...............................................154 6.7. Summary...........................................................................................................................172 7. Quantitative findings..............................................................................................................173 7.1. Introduction......................................................................................................................173 7.2. Analysis of generic McE and industry centric information..............................................175 7.3. Summary ..........................................................................................................................192 8. Qualitative findings................................................................................................................193

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8.1. Introduction .....................................................................................................................193 8.2. Findings of preliminary opinion survey ..........................................................................193 8.2.1. McE owners perceptions ..........................................................................................194 8.2.2. Government representatives perceptions regarding McEs.....................................198 8.2.3. Main contractors representative perceptions regarding McEs ..............................202 8.3. Findings of the shadowing exercise.................................................................................206 8.4. Findings of the McE centric investigation ......................................................................210 8.4.1. McE owners background..........................................................................................210 8.4.2. Endogenous factors...................................................................................................214 8.4.3. Exogenous factors.....................................................................................................237 8.5. Summary...........................................................................................................................252 9. Discussion of quantitative and qualitative findings.............................................................253 9.1. Introduction......................................................................................................................253 9.2. Summary of research findings .........................................................................................253 9.3. Key research questions ....................................................................................................271 9.3.1. Research sub-question 1: Is the inclusion of McEs in the SME cohort an erroneous practice?............................................................................................................................272 9.3.2. Research sub-question 2: What is the actual role of McEs in the UK construction industry?............................................................................................................................282 9.3.3. Research sub-question 3: Are McEs really failing?.............................................285 9.3.4. Research sub-question 4: Are all McEs the same?..............................................291 9.3.5. Research sub-question 5: Are all McE owners similar?........................................299 9.3.6. Research sub-question 6: Who is the ideal McE owner?......................................309 9.3.7. Research sub-question 7: How different are McE owners to owners of microenterprises from other industries?.....................................................................................312 9.3.8. Research sub-question 8: Which business owner typology do McE owners belong to?......................................................................................................................................314 9.3.9. Research sub-question 9: Can immigrant labour redress the skill shortage in the industry?............................................................................................................................316 9.3.10. Main research question: What are the factors which inhibit the development of McEs?..............................................................................................................................318 9.4. Measures to redress the current state of McEs...............................................................320 9.4.1. McE centric measures...............................................................................................321 9.4.2. Project centric measures...........................................................................................322 9.5. Summary...........................................................................................................................325 10. Conclusions and recommendations for future research ..................................................327 10.1. Introduction ...................................................................................................................327 10.2. Aim of research .............................................................................................................328 10.3. Drivers for the industry .................................................................................................330 10.4. Recommendations for future research...........................................................................334 10.5. Personal reflection ........................................................................................................336 REFERENCES...........................................................................................................................338 APPENDIX..................................................................................................................................363 Appendix A: Generic McE centric information pertaining to preliminary statistical analysis .................................................................................................................................................364 Appendix B: Preliminary survey results..................................................................................365 Appendix C. McE centric investigation...................................................................................380

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Appendix D. Immigrant workers perceptions..........................................................................386

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List of tables

LIST OF TABLESTable 2.1: Table 4.1: Table 4.2: Table 4.3: Table 4.4: Table 5.1: Table 6.1: Table 6.2: Table 7.1: Table 8.1: Table 8.2: Table 8.3: Table 8.4: Table 8.5: Table 8.6: Table 8.7: Table 9.1: Table 9.2: Table 9.3: Thresholds for different firm types within the SME cohort......9 Traits and qualities essential for an entrepreneur.....73 Types of entrepreneurial competencies....78 Business owners intention and ability centric factors which inhibit business growth...107 Characteristics and traits required in an owner for enterprise growth.........111 Sources of construction disputes123 Types of philosophical assumptions...138 Matrix for method selection...153 Percentile change in McE numbers184 Key owner centric factors...215 Absence of written contract....238 Instances of collusion observed on site..240 Instances of conflicts observed on site...243 Instances of information delay observed on site246 Instances of payment delay observed on site.248 Causal sources for the exogenous factors inhibiting McE success251 McEs v. Small construction enterprises: t-test..276 McEs share of construction output283 Factors inhibiting the development of McEs....318

List of Figures

LIST OF FIGURES

Figure 2.1: Figure 2.2: Figure 2.3: Figure 2.4: Figure 2.5: Figure 2.6: Figure 2.7: Figure 2.8: Figure 3.1: Figure 3.2: Figure 3.3: Figure 3.4: Figure 3.5: Figure 3.6: Figure 4.1: Figure 4.2: Figure 4.3: Figure 4.4: Figure 4.5: Figure 4.6: Figure 4.7:

McEs in the UK construction industry.......16 Comparative analysis of VAT Registrations v. De-registrations in ..........................18 Comparative analysis of VAT Registrations in UK v. Scotland.......19 Comparative analysis of VAT De-registrations in UK v. Scotland ...20 Trends of smaller subgroups within McEs ....21 Average survival rate of McEs which VAT registered from 1995-200422 Comparison of Annual Construction Output (All works) vs. number of McEs ....23 Relationship between performance of McE, industry and economy .......25 Measure for business failure........35 Environment/response matrix distribution with failure ..42 Input/output model of business failure in the construction industry 44 Example of matrix for expressing causes of McE failure45 Factors which influence McE business performance...47 Essentials for a successful entrepreneur...50 Types of small business owners...63 Alternative typologies for small business owners....66 Global competency space.....81 Example of a modified version of a global competency model ...............................................................83 Environmental factors which might influence entrepreneurial behaviour .....92 External factors and their affect on McE owners.93 Conditions for growth in a McE.108

List of figures Figure 5.1: Figure 5.2: Figure 5.3: Figure 6.1: Figure 6.2: Figure 6.3: Figure 7.1: Figure 7.2: Figure 7.3: Figure 7.4: Collusion in construction projects..121 Ideal information flow.. .126 Exogenous factors, which might affect McEs...133 Hierarchical model for research methodology...137 Ontological assumption .....141 Proposed research methodology.170 Stage wise distribution of research methods employed in the research.....173 VAT registration v. de-registrations (with trend lines)..176 VAT registration v. de-registration (Forecast)...178 Trends of groupings within McEs for the period 1995-2005............................................................................. ...179 Figure 7.5: Figure 7.6: Figure 7.7: Figure 7.8: Figure 8.1: Figure 8.2: Figure 8.3: Figure 8.4: Figure 8.5: Figure 8.6: Figure 8.7: Figure 8.8: Figure 8.9: Figure 8.10: Figure 8.11: x Trends of smaller subgroups within McEs for the period 2001-2005 with trend lines)....182 Self-employment rates (1995-2005) construction v. all other industries...186 Average survival rate of McEs which VAT Registered from 1995-2004 (with trend line)...187 Comparison of Annual Construction Output (All works) v. total no. of McEs and total no. of McEs with 0-1 employees..190 McE owners perceptions....194 Government representatives perceptions..198 Main-contractors representatives perceptions.202 McE age group v. POT percentage.....213 McE owners propensity to take risks v. POT percentage...217 McE owners willingness to innovate v. POT percentage...221 McE owners educational qualification v. POT percentage....223 McE owners inclination to employ external consultants v. POT percentage..225 McE owners inclination to attend training programmes v. POT percentage..227 McE owners motivation to start business...228 McE owners motivation to start business v Profit percentage...229

List of figures Figure 8.12: Figure 8.13: Figure 8.14: Figure 8.15: Figure 8.16: Figure 8.17: Figure 8.18: Figure 8.19: Figure 9.1: Figure 9.2: Figure 9.3: Figure 9.4: Figure 9.5: McE owners perception regarding key competencies....230 McE owners motivation to start business v Profit percentage..232 Optimum size for McEs (McE owners perception).234 McE owners intention to grow business v. Profit percentage...235 Typical structure of contractual relationships on construction projects..239 Collusion on construction projects and it affect on McEs241 Conflict situations as observed on site ..244 Information asymmetry as observed on site..247 McE POT percentage v. Small construction enterprise POT percentage..273 Mean POT %: McE v. Small construction enterprises...275 Average McE owners inclination, motivations and skills..279 Average small construction enterprise owners inclination, motivations and skills..280 Comparison of mean of average POT percentage (2000-2005): McEs v. Small construction enterprises v. Top 100 construction firms v. UK construction industry .....286 Figure 9.6: Profit trends (2000-2005): McEs v. Small construction enterprises v. Top 100 construction firms v. UK construction industry (2000-2005)..288 Figure 9.7: Figure 9.8: Figure 9.9: Figure 9.10: Figure 9.11: Figure 9.12: Figure 9.13: Figure 9.14: xi Comparison of average profits: McEs from different regions of origin.291 Comparison of average profits: McEs from different occupational cohorts..292 Comparison of average profits: McEs with different number of employees.294 Comparison of profit trends (2001-2005): McEs with different number of employees..295 Comparison of McE number v. profit (based on McEs with different number of employees).297 McE owners: Bricklayers...300 McE owners: Electricians.......301 McE owners: Fire protection..302

List of figures Figure 9.15: Figure 9.16: Figure 9.17: Figure 9.18: Figure 9.19: Figure 9.20: Figure 9.21: Figure 9.22: Figure 9.23: McE owners: Joiners..303 McE owners: Painters....304 McE owners: Plumbers..305 Different types of McE owners..306 Ideal McE owners...309 Micro-enterprise owners from other industries..312 McE level measures321 From a hierarchical order to a project whole..322 Parasitic relationship v. symbiotic relationship..........324

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List of abbreviations

LIST OF ABBREVIATIONS

CIOB: Chartered Institute of Builders CRISP: Construction Research and Information Strategy Panel DFEE: Department for Education and Employment DTI: Department of Trade and Industry EC: European Commission EU: European Union FSB: Federation of Small Businesses HMRC: Her Majesty's Revenue and Customs ILO: International Labour Organisation MBD: Market and Business Development McE: Micro construction enterprise NSO: National Statistics Office OECD: Organisation for Economic Co-operation and Development OJEU: Official Journal of the European Union POT: Profit Percentage of Turnover RICS: Royal Institute of Chartered Surveyors ROI: Return on investment SME: Small and Medium sized Enterprise

Acknowledgements

Acknowledgements

I would like to extend my deepest gratitude to the contribution my supervisor Professor James Sommerville has made throughout my research. James provided me with considerable freedom during the process, but was always available with support and advice when needed. He has helped greatly in both my development as a researcher and personally, and for this I am eternally grateful. I would also like to extent my thanks to Professor Cliff Hardcastle for providing me with the opportunity to study for my PhD, and in creating an environment within which I have spent three of the happiest years of my life. The School of the Built and Natural Environment (BNE) has been a big part of my life during this period and has provided a creative and friendly environment within which to study. The unquestioning willingness of everyone to help each other, and the feeling of being part of a team provided an atmosphere that you looked forward to coming in the morning. In Anthony, Micah, Christos and Sanjeevan I have found friendship for life and many happy memories. Thank you also to John, Nigel and Billy for their advice and encouragement throughout the process. I would like to extend my gratitude to Janet for the helping hand she has extended throughout the time I have spent at BNE. I would like to thank all the members of the BNE past and present who have introduced me to many different cultures and have contributed to an experience that I will never forget. I would also like to thank individuals from the construction industry who spared time from their busy schedules to help me in my research. Last but not the least I would like to thank all the members of my family who have supported me in all my pursuits in life.

Declaration

Declaration

This thesis is submitted to Glasgow Caledonian University for the Degree of Doctor of Philosophy. The work presented was carried out under the supervision of Prof. James Sommerville within the School of the Built and Natural Environment at Glasgow Caledonian University. Unless otherwise stated in the text, the work presented in this thesis is my own.

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Chapter1

1. Introduction1.1. Background

Micro-construction enterprises (McEs) are defined as enterprises which employ less than 10 employees and have a turnover under 2 Million Euros (European Commission, 2003). They make up 98 percent of all construction enterprises in UK and contribute toward 60 percent of the employment and 40 percent of total turnover of the UK construction industry (DTI, 2006). According to Sommerville and McCarney (2003) majority of the projects delivered in todays construction environment rely significantly on McEs for their success. The above figures and assertions clearly highlight the important position, which the McEs should have in the UK construction industry.

However, the ground reality is quite different; McEs have long been undervalued, which becomes apparent when one tries to source McE centric literature. Information pertaining to McEs is extremely scarce; this situation is rather perplexing given their vital role in the UK construction industry.

This scarcity of information could be attributed to the classification of McEs within the larger cohort of SMEs which include all firms which have 0-250 employees and a turnover less than or equal to 50 Million Euros (European Commission, 2003). SMEs can be further broken down into three types of firms namely, micro, small and medium sized enterprises. These firms greatly vary in their size and characteristics which defies the logic of grouping these firms under one cohort. This common

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Chapter1 grouping comes across as an erroneous practice given that the operational dynamics and the general state of affairs in a micro-enterprise are far removed from that of a small or a medium sized enterprise, at both the firm level and the project level. It can also be argued that this act of grouping McEs within the SME cohort is a metonymical misconception, which finds it roots in classical economics theory. A similar situation further manifests itself in most research studies pertaining to McEs in the UK construction industry, as researchers tend to group McEs with small and medium sized enterprises. This calls for research specifically focused on McEs as the current understanding of their characteristics and operational dynamics is extremely limited.

This research is specific to the McEs which operate on construction projects and excludes the McEs involved in the refurbishment sector as their characteristics and position in the industry vary. The McEs fulfil multiple roles on construction projects depending on their size. A self-employed McE (with no employees) usually works as a lone entity on an itinerant basis shifting from project to other (Nisbet, 1997). They are usually considered as fillers for the employees, which main contractors would have to otherwise directly employ (Sommerville and McCarney, 2003). Whereas the larger McEs might even function as a full blown contractor, but their general role is limited to that of a subcontractor. The McEs also vary on the basis of their occupational specialisations as some offer high end technologically biased services like fire protection whereas others like bricklayers carry out relatively simple operations. This variance in the McEs characteristics calls for isolated focus on different types of McEs.

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Chapter1 As mentioned before McEs though vital to the industry have often been overlooked given their subordinate status and perceived worth in the industry. It would not be wrong to assume that this is as much a categorisation based on their actual base end position in the industrial hierarchy, as it is a inappropriate interpretation of their actual contribution and influence. This calls for an in-depth analysis of McEs roles and function within a project setting. This exercise would clearly decipher if the common assertion regarding their base end position is valid.

McEs are usually owned by a single individual who has worked in the industry for an extended period of time following which he or she sets up a business with the intention of becoming financially independent. This is an assumed character profile of a McE owner. As mentioned before, McEs might vary from each other on the basis of their size and occupation specialisation, the same could be said for a variance in McEs based on their owners character profile. No two individuals are ever the same; the same could be assumed for the McE owners as they might vary on the basis of their behavioural traits, skill sets and other determinants. This calls for an in-depth analysis of McE owners characteristics. This exercise would help decipher differing owner centric inclinations, perceptions, and skill sets.

Nowadays upto 90 percent of the project value in construction projects can be subcontracted (Lehtonen, 1998); McEs might carry out a large proportion of this subcontracted work. This would suggest that the McEs might have a greater say in the proceedings within the construction project however, the ground reality might be to the contrary. This is corroborated by Dainty et al. (2001) who suggest that smaller enterprises have to date had little involvement with the development and

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Chapter1 implementation of supply chain performance improvement and integration measure within the construction industry. This points towards subjugation of McEs within project settings. This calls for an in-depth analysis of McEs operational dynamics within project settings to decipher whether the above-mentioned assertion regarding subjugation of McEs stands true.

The UK construction industry accounts for about 7 percent of the UK gross domestic product (GDP) which amounts to about 60 billion of business each year (DTI, 2007). It is also one of the single largest employers in UK employing 7 percent of the total people in employment. A large proportion of the construction industry output and employment is contributed by McEs thus highlighting the patent role of McEs in the UK economy however as mentioned before their contribution is not taken heed of. This research is aimed at providing a panoptical overview of different factors, which contribute to this undervaluation of McEs.

1.2. Aim and Objectives of the research

The main aim of this research is to prove or disprove the argument that there are a set of factors, which inhibit McE growth in the UK construction industry.

To prove of disprove the veracity of the above hypothesis would involve multilayered assessment of McEs within different settings. This research aims to corroborate the above assertions and while doing so identify key factors, which vitiate McEs performance thus resulting in their undervaluation.

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Chapter1 This research builds on the understanding of the simplest firm type operating in the construction industry, the McEs. McEs are an integral part of the construction industry but are often overlooked. There is a contention that the McEs are the lifeblood of the construction industry and yet often undervalue themselves or are undervalued by those in the higher echelons of the industry.

As mentioned earlier McEs form the majority of enterprises in the UK construction industry (DTI, 2006) however, they are cloistered at the bottom end of the UK construction industry, which could be attributed to the perceptions of the key drivers of the industry towards them. This research would try to divulge perceptions of key industry drivers regarding McEs to test whether the above assertion is vindicated.

This research intends to delve deeper into the characteristics of a McE owner, which would help, divulge information regarding their inclinations and traits. This research would also look at deciphering the motivators driving the McEs and defining their strategic intent.

As part of this research, an accurate mapping of McEs activities within the composite construction project processes would be conducted to delineate McEs roles and responsibilities. This would involve an in-depth assessment of the operational dynamics of McEs within a range of supply chains.

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Chapter1 The main underlying objectives of this research exercise are:

Developing a robust view of the literature surrounding operation of McEs; emphasis would be laid on review of literature in the area of operations of McEs within construction supply chains, McE success and failures, and factors affecting small business success.

Investigate the field dynamics of a range of McEs. Investigate the personal characteristics and drivers of McE owners. Investigate factors emanating within construction projects which influence McEs.

Integrate operation of McEs within the composite supply chain and industry frameworks.

Develop a set of findings which would help divulge key factors which affect McE performance.

The above mentioned research objectives are aimed at clearly delineating factors which promote or inhibit McE performance.

1.3. Structure of the thesis

The thesis is divided into 8 chapters:

Chapter 2: Provides a general overview of the role and functions of a McE. This chapter also highlights key McE centric information, which forms the basis for further research.

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Chapter1 Chapter 3, 4, and 5: Demonstrates how literature supports the research questions. Chapter 3 is aimed at deciphering key factors, which affect small business performance. These factors have been segregated into endogenous and exogenous factors, which have been elaborated over in, Chapter 4 and Chapter 5 respectively. Chapter 6: Covers method adopted including design, rationale, and implications. Chapter7, 8 and 9: Elaborate on the research findings and answers the key research questions. Chapter 7 elaborates on the quantitative findings and Chapter 8 on qualitative finding of this research respectively. Chapter 9 comprises of a summary of the findings and the answers to the key research questions. Chapter 9 also elaborates on measures which have been advocated as part of this research to redress the situation McEs find themselves in. Chapter10: Presents the conclusions derived from the overall research findings and outlines recommendation for future research

1.4. Summary

The preceding sections of this chapter set the scene for what this research is aimed at and elaborate on the key research objectives. The following chapter provides a general overview of McE roles and function and comprises of a preliminary assessment of McE centric information.

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Chapter 2

2. McEs: an overview2.1. Introduction

This chapter aims to set out what micro-enterprises are and helps delineate their role in the UK construction industry. This chapter also contains an analysis of McE centric statistics, which helps reveal their current state of affairs. This analysis is exclusive to the McEs in the UK construction industry.

2.2. What is a micro-enterprise?

The term micro-enterprise is made up of two terms micro and enterprise. The Oxford Dictionary (2002) meaning for micro is something, which is, extremely small in scale or scope or capability, and enterprise is, venture or project or endeavour. Thus if we were to put these two terms together one could define micro-enterprise as an, extremely small scaled venture or project or endeavour. Enterprises are placed within different cohorts like SMEs or large enterprises based on their quantitative and qualitative characteristics.

a) Quantitative: based on criteria such as employment, turnover, and asset size. These vary by industry and country. b) Qualitative: based on ownership or control of the business.

Micro-enterprises are defined, quantitatively, as enterprises that employ fewer than 10 individuals and whose annual turnover or annual balance sheet total does not 8

Chapter 2 exceed 2 million Euros (EC, 2003). Glancey and McQuaid (2000) suggest that micro-enterprises can be qualitatively defined as enterprises that are largely independent and not mostly owned or controlled by large firms. Bolton (1971) defines a small enterprise in a qualitative manner as an enterprise that has, a relatively small share of its marketit is managed by its owners or part owners in a personalised way. In addition, not through the medium of a formalised management structureit is also independent in the sense that it does not form part of a larger enterprise and that the owner should be free from outside control in taking their personal decisions. This definition could be also applied to micro-enterprises, as they tend to have the similar characteristics.

2.3. The inadequacy of classifying micro-enterprises under the label of SMEs

Department for Trade and Industry (DTI) classifies micro-enterprises within the unique cohort of SMEs i.e., small and medium sized enterprises. The thresholds for different firm types within the SME cohort are represented in Table 2.1.

Table 2.1. Thresholds for different firm types within the SME cohort (EC, 2003)

Enterprise category Micro Small Medium-sized

Headcount: Annual Work Unit (AWU) < 10 < 50