The Research Seminar Series during the period October 2021 – January 2022 will be centered around the topics of innovation and entrepreneurship and will include the talks by Ema Talam, Dr Frederick Nyakudya, Professor Geoff Pugh and Dr Nebojsa Stojcic.
All our research seminars will be held on the last Wednesday of the month (detailed schedule is provided below) between 12.00 – 13.00 via Microsoft Teams
Please contact Ema Talam (organiser of the series) if you have any queries ema.talam@staffs.ac.uk
Ema Talam and Dr Frederick Nyakudya both work on the new Help to Grow project linking research with knowledge exchange to regional businesses. Sign up now if your business would benefit from training and mentoring.
Dr Bharati Singh, Course Leader, Business Innovation and Entrepreneurship
The Business Innovation and Entrepreneurship course is not only about being an entrepreneur or setting up your own business but it is actually understanding how innovation and entrepreneurship should really be at the heart of any business decision. Successful businesses today are the ones who have been really innovative, they have fresh thinking with an entrepreneurial mindset. In today’s dynamic business setting, both small and large companies harness entrepreneurial streaks.
Entrepreneurship and innovation play a very important role within businesses of all shapes and sizes. Employees are expected to think outside the box which can only happen if employees can think innovatively. Today’s world is rather dynamic with the speed of innovation becoming faster, a shorter product life cycle, ever-changing consumer taste, technological advancement, competitor threat, changing government and legal landscape and other external factors not in the control of businesses.
In the face of the current pandemic, it becomes ever so important
to be aware of the surrounding economic conditions and the political climate.
To explore the ethical and unethical anomalies in the contemporary global
political and global economic systems. Such systems can provide both challenges
and opportunities.
Sustainability has become a buzz word today. It is not only about
shareholders and profitability anymore. Consumers, suppliers, governments and
many other stakeholders now question the practices of businesses. Companies are
expected to run their businesses with a social responsibility. The triple
bottom line (Elkington 2018); which translates to people, profit and planet,
need to be considered.
Creative Destruction (Schumpeter, 1942) has taken a different
meaning altogether in todays business environment. We are in the midst of the
fourth industrial revolution and ‘disruption’ is at the heart of it. Companies
go through continuous organisational change and hence, have to assess how to
leverage innovative business models to remain competitive.
Of course, to innovate or have an entrepreneurial streak and to
sustain a competitive edge, it is imperative for individuals and companies to
have a strategy. Strategy is key in business planning and entrepreneurial
success.
Thus, to gauge global challenges and opportunities, understand about the social enterprise, develop an entrepreneurial mindset, to be creative and innovative, develop sustainable business practices, leverage change management and have a strategy to maintain competitive advantage, reading for a degree in Business Innovation and Entrepreneurship will enable students to hit the ground running.
References:
Elkington,
J. (2018). 25 Years Ago I Coined the Phrase “Triple Bottom Line.” Here’s Why
It’s Time to Rethink It. Harvard Business Review, June 25, 2018
Schumpeter, J. 1942. Capitalism, Socialism, and Democracy. New York: Harper & Bros.
Following the successful government-funded Small Business Leadership Programme, in conjunction with the Small Business Charter, Staffordshire Business School has enhanced the digital marketing courses to respond to identified business needs.
Issues emerged from the Small Business Leadership Programme
The programme allowed us to work with businesses nationally to understand their key challenges across business operations and provide guidance on how to survive and thrive in a continuously transforming environment. Naturally, businesses have their unique needs, however there were overarching themes identified which impact success. Whilst there have been developments in accessibility of training, digital marketing continues to be highlighted as a significant area with skills gaps. Particularly with the rise in e-commerce as a necessary approach for selling products and services due to the pandemic(Statista, 2020).
The Changing Consumer
It is no secret that in 2020 we saw accelerated changes in the way in which consumers engage with businesses. With 56.3% of the world’s population now on social media (We Are Social, 2021), changing customer expectations is not something that we can ignore. Operationally, we have learned that there is not the required time on a day to day basis to address those vast changes. The Small Business Leadership Programme enabled us to work practically with those businesses to ensure that understanding their audience is not something that is simply discussed in theory, but can be executed. This concept, coupled with working with businesses first hand, is embedded within course curriculum to ensure that the relevant skills are developed prior to entering the professional environment.
Attracting New Business
It is clear from the challenges caused by COVID-19, that if customers are not acquired and retained, business survival is put under great pressure (Hubspot, 2020). But how exactly do we use the right channels to attract new business? Through social listening, strategising against objectives and harmonising with business values, our connected business were able to ‘see the wood from the trees’ when striving for growth. As a digital society, we are inundated with options for promotion. This in fact has been a key barrier for our businesses, who found that perhaps too may options caused confusion of where they should be engaging.
Practical Ways to Plan and Rebuild for the Future
Overall, a general consensus across the five cohorts on the Small Business Leadership Programme was that planning for the future was most challenging, particularly with the reality of the changing environment often being faster than what they could plan for. We supported those businesses to think proactively, utilising guidance from our Entrepreneurs in Residence and to only use reactive approaches when relevant changes emerged for their business. We identify here that in order to support these business challenges, a flexible learning framework is key to any individual developing themselves within digital marketing.
Responding to the identified skills gaps, specifically with SME’s nationally, Staffordshire Business School provides a wide range of Digital Marketing courses focusing on industry expected knowledge, alongside fundamental skills needed to succeed in a professional environment. See our list of available courses below.
There are still places available on all courses, starting September 2021. Our variety of courses support a flexible approach to studying, with options for all experience levels.
Just as businesses are adapting to the shock of Brexit, the global pandemic presents another disruption to businesses. These two events have created huge uncertainty for most small businesses while some have benefited . The striving small businesses are revaluating their strengths with financial metrics to enhance their sustainability as the new markets are emerging. Financial metrics present small businesses with the opportunities to increase efficiency in their operations, liquidity, profitability and stability during uncertainty period. Some commentators argue that inadequate liquidity is the major reason small businesses collapse during the uncertainty period.
The quick ratio helps the business managers to evaluate their businesses financial liquidity. This informs the business managers of how current assets excluding inventories can be quickly converted to cash to meet their current liabilities. This ignores inventory because it is not easily converted to cash. Unlike the current ratio which considers inventory value, the quick ratio is generally viewed as the conservative evaluation of business liquidity as it’s based on the business most liquid assets. For instance, a business has current assets worth £40,000 of which inventory is £10,000, and £15,000 worth of current liabilities thus the business has a 2:1 quick ratio. This indicates that the business can afford to meet the short-term liabilities twice with the short-term assets.
Businesses with a 1:1 or lower quick ratio could be at risk of becoming a going concern. Thus, small businesses with limited access to funds might fire sale their non-current assets to meet the current liabilities.
Many businesses have already closed due to Brexit and the global pandemic and it has been estimated that a further approximately, 98,000 small businesses might not survive the current pandemic. Thus, small business managers that are currently struggling to survive should pay attention to their financial metrics especially the quick ratio.
Unlike the quick ratio, many commentators argue that the current ratio cannot accurately evaluate some businesses short-term liquidity power. For instance, a retail business that targets seasonal customers will stock up inventory for the season. Thus, toward this period the current ratio rises and fall after the seasonal sales. Hence, the quick ratio would be best to evaluation the liquidity ability of such businesses as it ignores the inventory value.
However, other commentators argue that excluding the inventory value from the current assets could be an inefficient way of evaluating liquidity ability for some businesses. For instance, small business such as corner shops that a large percentage of their current assets are fast-moving inventory. Thus, excluding the inventory from the current asset would relatively inflate the current liability. Hence, the quick ratio will present an inaccurate picture of the business to cover their current liability with their most liquid assets.
In conclusion, business managers need to consider both the quick ratio and current ratio, especially during the uncertainty period. This would provide a more accurate measurement of their business ability to pay their short-term liabilities without being forced to fire sale their non-current asset.
Business managers need to ensure that the quick ratio and current ratio is not too excessive compared to other competitors in their sector as this could indicate poor control of working capital. This might suggest that the business is not turning over its inventory quickly enough or is carrying slow-moving or obsolete inventory and has poor credit control practices resulting in their customers delaying payments beyond the agreed terms.
Once you have used these initial basic filters to find the
strongest ideas, the next stage is to use a more in-depth filter to make
decisions on the remaining ideas. Day (2007) recommends using a risk matrix. The R-W-W matrix is based to three key questions:
Is it Real?
Can we Win?
Is it Worth doing?
This is expanded into the following set of questions:
Is it real?
Is the market real?
Is there a need or desire for the product? Can the customer buy it? Is the size of the potential market adequate? Will the customer buy the product?
Is the product real?
Is there a clear concept? Can the product be made? Will the final product satisfy the market?
Can we win?
Can the product be competitive?
Does it have a competitive advantage? Can the advantage be sustainable? How will competitors respond?
Can our company be competitive?
Do we have superior resources? Do we have appropriate management? Can we understand and respond to the market?
Is it worth doing?
Will the product be profitable at an acceptable risk?
Are forecasted returns greater than costs? Are the risks acceptable?
Does launching the product make strategic sense?
Does the product fit our overall growth strategy? Will top management support it?
STAGE THREE
Once a few viable marketing innovation ideas remain, the
next stage is to consider the risks even further. This is where conducting a pre-mortem is a useful tool. This helps
organisations identify the possible failures of a project before they happen
and mitigate risk by pre-planning so that those failures don’t occur.
The following pre-mortem exercise has been adapted from Gray
et al. (2010).
Activity
Step 1
Imagine we are two years in the future. Things have gone completely wrong. What could have caused this? Generate a list of all the reassons failure occurred.
Step 2
List all concerns and rank them to deterimine priority
Step 3
Address the 2 or 3 items of greatest concern and list what actions you would need to take to stop the issues happening.
The list of risks and actions that
need to be taken to mitigate the risk can be used as Critical Success Factors (CSFs) for an innovation or project
launch.
Hopefully, this article has helped you think about the different types of innovation you can potentially pursue and how to evaluate the best route forward, using a systematic filtering process.
Fisk, P. (2017). Gamechangers:
Are you ready to change the World? Creating Innovative Strategies for Business
and Brands. West Sussex: John Wiley and Sons Ltd.
Gower, L. (2015) The
Innovation Workout. Harlow: Pearson Education Limited.
Gray, D., Brown, S. & Macanufo, J. (2010) Game Storming: A Playbook for Inovators,
Rulebreakers, an Changemakers. Sebastopol: O’Reilly Media, Inc.
Keeley, L., Pikkel, R., Quinn, B. and Walters, H. (2013). Ten Types of Innovation: The Discipline of
Building Breakthroughs. New Jersey: John Wiley & Sons, Inc.
Osterwalder, A. and Pigneur, Y. (2010). Business Model Generation: A Handbook for Visionaries, Game Changers
and Challengers. New Jersey: John Wiley & Sons, Inc.
Supporting SME leaders to create resilience and manage uncertainty in 2021 and beyond
Access free ideas, guidance, peer & 121 support to help your business to manage the uncertainty of steering through the pandemic and impacts of Brexit for up to TWO leaders in your business.
Staffordshire Business School is supporting regional business by delivering free training in leadership and management to provide exactly what business needs most to build a resilient future.
This is cohort 5 of the SBLP and the positive impacts of previous cohorts are being felt across the region. Here is what Rhys from XP VR thought of the course
Why choose to be part of the Small Business Leadership Programme? ▪ Make your business more resilient ▪ Boost business performance and growth ▪ Create an innovative and agile organisation ▪ Recover from the impact of COVID-19 ▪ Find solutions to the impact of Brexit ▪ Build leadership skills, confidence and effectiveness ▪ Plan for a solid future for your business ▪ Build lasting relationships with small business leaders ▪ Improve risk management and efficiency
When does the course start? Tuesday the 30th March 2021 (1st webinar at 3pm)
If you would like to have a chat about the course then please email one of our experienced Entrepreneurs in Residence with your phone number and they will call you back,
Here’s what another business thought of the course: Geoff Barton, General Manager of Canalside Farm in Great Haywood near Stafford said: “It’s allowed me to connect with other businesses, and I’ve learned much and managed to strengthen a few knowledge gaps and boost my handling of the business during these unique times.”
What’s involved? Eligibility requirements ▪ Your business must be a Small or Medium-sized Enterprise (SME) based in England. ▪ Your business needs to employ between 5 and 249 people and have been operational for at least one year ▪ The participant should be a decision maker or member of the senior management team within the business with at least one person reporting directly to them. ▪ The participant must be able to commit to attending the full programme
Time commitment The programme is designed to be manageable alongside full-time work and furloughed staff can join the programme.
Participants will attend 8×90- minute webinars across ten weeks, and complete up to 2 hours of independent development and peer-supported engagement per week.
Places are fully funded by the Government to support the resilience, recovery and growth of SMEs during and after COVID-19. The programme is completely free to attend but places are strictly limited.
Register Now There are two ways to register.
Email one of the Entrepreneurs in Residence as listed above and they will talk you through the process.
Follow the simple instructions below (this takes 3 minutes) and we will be in touch: • Go to https://smallbusinesscharter.org/sblp-registration/ • Choose ‘West Midlands’ from the pink vertical menu on the left • Scroll through the list of centres until you find Staffordshire University (start date 30th march) & click register
PLEASE NOTE: Your business can send up to two eligible delegates to this programme and delegates can be furloughed. Please do one registration for each person.
The British Academy (the United Kingdom’s national academy for the humanities and the social sciences) has tasked us with investigating the specific challenges that UK business owners faced during the COVID-19 pandemic and lockdown, the strategies that they used to keep their businesses afloat, and how they engaged with financial and regional support.
We are also interested in how best to support members of the Black Asian and Minority Ethnic (BAME) business community.
To participate in our study, kindly fill the survey below and/or please share the URL with your networks if you know any other business owners:
Ethnic minorities were particularly affected by the COVID-19 pandemic in the UK and US, as in some other countries. In particular, the risk of death for some ethnic minority individuals who contracted COVID-19 in these countries was two to three times more compared to white individuals.
This disparity was a result of the underlying social and economic risk factors that ethnic minorities face, such as living in overcrowded and urban accommodation, being employed in riskier lower-skilled jobs, reduced access to healthcare, and structural racism. In other words, ethnic poverty in developed countries is driving higher infection and consequently death rates for ethnic minorities.
Drivers of Ethnic Poverty
Underlying the drivers of poverty for ethnic minorities in many developed countries are several socio-economic factors which include historical factors, discrimination, educational and entrepreneurial variations, and employment and pay disparities between ethnic groups.
Despite facsimile policies that emphasize equal access to education and employment in many developed countries, discrimination remains a critical barrier to equal employment. Several studies have found that both ethnic minorities are called back for interviews 50% less frequently than comparable whites, hired less often for high-skill jobs, and once hired are paid less. Thus, despite the increasing educational gains made by ethnic minority individuals, many are overqualified for the jobs that they do. Ethnic minority workers also often report not being given pay rises and being passed over for promotion.
Another very important driver for the disproportionately high poverty rates among ethnic minority groups is the concentration of such workers in low-paid work. Ethnic minority workers are more likely to work in low-paid sectors with limited progression opportunities and lower wages. Lack of movement out of low-paid work increases the risk of poverty among ethnic groups. In addition, there is generally a lower percentage of ethnic minority workers who are managers, directors, and senior officials.
Before the pandemic, BAME business owners were less likely than non-BAME business owners to obtain mainstream business support and in the early days of coronavirus, nearly two-thirds of BAME business owners felt unable to access state-backed loans and grants, leaving many on the brink of financial ruin.
BAME-owned businesses are traditionally concentrated in the sectors worst hit by lockdown such as retail, health and social care, education, restaurants and accommodation.
The economic crisis facing these businesses is aggravated by the fact that they are more likely to hire a considerable number of BAME employees and attract more BAME customers. The significantly higher risk among such groups from COVID-19 implies that these businesses would have had to incur considerable costs to protect their staff and customers.
Solutions
Ethnic minorities consistently report reduced access to education, lack of social and financial capital, unemployment, low-pay, and poor progression from low-paid sector work. This suggests similar solutions for all groups, which would lead to better-quality jobs and higher pay. However, given that some of the drivers of poverty, such as higher unemployment and inactivity rates disproportionately affect ethnic groups, specific forms of outreach activity and drawing on local knowledge may be needed in these contexts.
Similarly, government solutions to reduce ethnic poverty in developed country contexts include interventions that ensure that education, training and apprenticeships are provided for ethnic minorities as well as schemes that help tackle low pay among ethnic minority workers. There is a need for policies that focus the on education, skills and training for ethnic groups particularly digital, literacy, and numeracy skills. Moreover, policies should also be encouraged that monitor the workforce in relation to ethnicity, which should include the recruitment, retention and progression phases of jobs.
Authorities need to work with employers to provide better-paid jobs and they should do more to listen to and encourage employers to hire a diverse range of skills and experiences. It is advisable to consider putting targets for ethnic minority representation on boards, something that has proven successful in the case of gender. It is also important to recognise the benefits of positive discrimination in the labour market, rather than view legislation to combat ethnic inequality as red tape or political correctness. Mortgage market discrimination needs to be eliminated as this would allow ethnic minorities to take advantage of the benefits that come with owning a home.
State-backed grants and loans should be made more accessible as an incentive to business owners who have incurred additional costs to protect customers and staff. Crucially, the process to obtain them should not be too onerous and the criteria should be fair. Regional governments should also take care to plug BAME businesses into the supply chains of local projects in response to the pandemic.
Source: Author
All these should reduce ethnic poverty and the economic and health inequalities that the COVID-19 pandemic has highlighted.
Over the last few months we have been running a module on
‘Innovation, Value and Markets’ to over 70 Staffordshire business people, as
part of our Small
Business Leadership Programme.
During the workshops it was very clear that most small businesses have had to rethink their business model to adapt to massive shifts in consumer behaviour (and supply chains) because of Covid. The UK Government defines innovation as: The successful exploitation of new ideas. Innovation may involve an organisation’s:
Products and services
Processes (e.g. exploiting new technologies)
Business model (e.g. new income sources/
improved supply chain)
Business Model Innovation
According to Fisk (2021) although there are an infinite
number of potential business models some of the most common formats (applicable
to nearly every type of business) are:
Advertising-based
models. Services are free to users, whilst advertisers pay to engage with
the audience attracted, e.g. Google, Facebook.
Razor-and-blades
models. The facilitating item, like a razor, is sold cheaply, then
accessories, like blades, at a premium, e.g. HP, Nespresso.
Added-value
models. The facilitating item, like an iPad, is sold at a premium, then
accessories, like apps, sold cheaply, e.g. Apple.
One-of-one models. The company donates a
product to a charity, or person in need, for every product sold, e.g. Toms,
Warby Parker.
Cashflow
models. High volumes are generated at low margins, payments received
quickly from customers, paid slowly to suppliers, e.g. Amazon, Dell.
Platform-based
models. These bring buyers and suppliers together, typically charging both
of them to connect and transact, e.g. Airbnb, Uber.
Subscription-based
models. These charge a regular, e.g. monthly, fee for unlimited use of a
product or service, e.g. Netflix, Zipcar.
Freemium
models. These encourage trial or a basic level of usage for free, but
charge for additional or premium options, e.g. Spotify, Fornite.
Direct to
consumer models. Products which in the past would have been sold through
intermediaries are sold direct, e.g. Allbirds, Casper.
10 Types of Innovation
If we want to expand the UK Government’s three categories of
innovation, recent research has identified ten main types of innovation (Keeley et al., 2013):
Profit Model: The way you make money (e.g. Netflix changed the video rental industry by implementing a subscription model)
Network: Connections with others to create value (e.g. Target works with renowned designers to differentiate itself)
Structure: Alignment of your talent assets (e.g. Whole Foods has built a robust feedback system for internal teams)
Process: Signature of superior methods for doing your work (e.g. Zara’s ‘fast fashion’ strategy moves its clothing from sketch to shelf in record time)
Product Performance: Distinguishing features and functionality (e.g. OXO Good Grips costs a premium but its ‘universal design’ has a loyal following)
Product System: Complementary products and services (e.g. Nike+ partnered shoes, sensors, apps and devices into a sport lifestyle suite)
Service: Support and enhancements that surround your offerings (e.g. Zappos “deliver WOW through service” is their #1 internal core value)
Channel: How your offerings are delivered to customers and users (e.g. Nespresso locks in customers with its useful members only club)
Brand: Representation of your offerings and business (e.g. Virgin extends its brand into sectors ranging from soft drinks to space travel)
Customer Engagement: Distinctive interactions you foster (e.g. Wii’s experience draws more from the interactions in the room than from on-screen)
The ‘Business Model Canvas’ is one of the most used
templates in business to map a business model (Osterwalder and Pigneur, 2010).
This is a useful tool for rethinking the whole business, seeing connections and
then innovating the business.
Fisk, P. (2017). Gamechangers: Are you ready to change the World? Creating Innovative Strategies for Business and Brands. West Sussex: John Wiley and Sons Ltd.
Keeley, L., Pikkel, R., Quinn, B. and Walters, H. (2013). Ten Types of Innovation: The Discipline of Building Breakthroughs. New Jersey: John Wiley & Sons, Inc.
Osterwalder, A. and Pigneur, Y. (2010). Business Model Generation: A Handbook for Visionaries, Game Changers and Challengers. New Jersey: John Wiley & Sons, Inc.
Author
Tanya Hemphill can be found on twitter @DigitalTanya she has recently joined Staffordshire Business School. She teaches on the MSc in Digital Marketing Management which includes a credited workplacement.
Angela Lawrence, Associate Dean, Staffordshire Business School
This morning I was labelled a geek. I don’t mind being called a geek (I probably am a bit of a geek) but what is interesting is that this label was awarded as a result of me sharing a plan on twitter. The plan for my allotment in 2021.
Now I don’t feel that planning makes me geeky – I’m a big believer in planning and the saying “fail to plan, plan to fail” is one that I use often. I plan a work “To Do” list at the end of each working day, a shopping list before walking down to the shops, I plan holidays months if not years in advance and yes, I plan which vegetables I am going to grow at my allotment and which beds they will go into. That way I can be sure that the soil will be right for them, the light conditions will suit them and that everything grows together in harmony to produce bountiful harvests.
Planning is a big part of business success – we create business plans, marketing plans and project plans in all aspects of our working life. Without things like business continuity planning, risk management, financial planning, many businesses fail to survive in today’s fast-moving work environment. Students are taught planning not only as part of their studies, but also as part of their own lifestyle management as a student – our students even brought together some tips to share with others in this YouTube video.
Some
would say planning has been difficult during 2020 and it’s hard to plan when we
don’t know what we will be able to do. I think this is actually all the more
reason to plan – if plans didn’t materialise, as so many failed to during 2020,
then we suck it up and plan all over again, whether it be a holiday, a
birthday, a wedding or a study plan for the year. What has been bumped from the
top of the list now goes back into the list again for re-scheduling.
Plans give us hope and they psychologically prepare us, they build anticipation, and they demonstrate commitment. When we plan, we mentally get organised and prepare ourselves and this is a good thing – it saves us from stressing about the unknown, relieves some uncertainty and helps us to cope better.
Plans
don’t have to be big, they don’t have to be impressive, they don’t have to be
written down (although I do get great satisfaction from planning on paper) and
they don’t have to be shared. They may not mean a thing to anybody but you, and
that’s just fine. I can guarantee that you will enjoy your planned activities
far more for having planned them and that you will stress less and cope better
with things that challenge you.
Happy planning – you have a whole year ahead of you, LET’S GO!
Staffordshire Business School is a premier centre for business education with decades of experience in providing business courses at the forefront of industry and technological developments. Business planning is integrated into all of our new business courses – click here to find out more.
Mayowa Akinbote, Lecturer, Staffordshire Business School
Apple Inc. (Apple) is a well-known technology
company for designing, manufacturing and selling smartphones, tablets,
computers and other digitals accessories. Apple has been the world most valuable brand in 2020 with revenue of $267.7 billion (£203.3 billion) and profit of $57.2 billion (£43.4 billion) and the largest public organisation in the United
State of America (US) in 2018.
In 2016, the European Commission found Apple guilty of paying the below 1% effective tax rate to the Irish government in 2003 and that Apple was given preferential tax treatment. This tax advantage was declared illegal and the commission rule that of £12.7 billion in taxes and interest should be paid to Irish government coffers. This amount is equivalent to the Irish National Health budget. Recently, Apple becomes the most valued traded corporation in the world, valued at £1.7 trillion bigger than £1.5 trillion value of all the FTSE 100 the UK top companies. While Amazon and Google followed Apple as the most valued traded corporations in the US. Some commentators suggest that such sudden growth in value could be aided by tax avoidance deals thus such could create competitive advantages over their competitors.
Tax Avoidance
Tax avoidance is legally bending of the tax rules to gain an undue tax advantage
that the rules never intended and creating tax loopholes. Transfer pricing is the biggest enabler of tax avoidance. Big
companies like Apple design, manufacture, test, hold patent rights and
marketing rights of their products in different countries. This gives
opportunities to allocate high costs discretionarily to the country that offers
low tax advantage like Ireland thus, profit is channel across borders. The
annual global tax avoidance is equivalent to the entire Belgium Gross Domestic Product (GDP) with British overseas territories
such as British Virgin Island, Bermuda, Cayman Island followed by Netherland,
Switzerland, Luxembourg and Ireland in Europe topping the list of tax avoidance
enablers.
Similar to the other multinational companies such as Starbucks, Google, Amazon and Facebook, Apple legally channels 90% all its global profits to through Luxembourg and Ireland before profits were channelled to non-Irish residence subsidiaries to avoid paying taxes. This is not unknown, but the Irish government accept the deal in return for the inward investments and jobs creation. Besides Ireland pride herself as one of the countries with the lowest corporation tax rates in Europe at 12.5%.
In the UK airline companies like tax exile, Virgin Atlantic and EasyJet
benefited from tax avoidance for decades. Avoiding paying taxes into the
countries where they generate profits hence, reducing the funds available for
the development of the key facilities that could save host community’s
livelihood especially during this period of uncertainty such as coronavirus
pandemic. Regrettably, these companies are also ripping where they did not sow.
For instance, the air industry seeking £7.5 billion in bailout due to coronavirus lockdown. They also took the
advantage of the government taxpayer-backed general support during the
uncertainty period.
Competitive Advantage
Michael Porter explains four generic strategies
which companies could adopt to gain high profits over their competitors such as
cost leadership, cost focus, differentiation leadership and differentiation
focus.
The first two strategies focused on cost
leadership strategies are price-based competition in a targeted market. Companies
such as EasyJet and Amazon adopt cost focus and cost leadership using both
economies of scale and scope to achieve the lowest cost of production to their
advantage thus generating high profits with their strategy. These companies
rather paid shareholder(s) than to invest in their workforce or pay taxes to
the host countries. For instance, at the start of the pandemic, EasyJet paid £60
million of dividend to Monaco tax resident founder Stelios Haji-Ioannou.
The other two strategies focused on
differentiation strategies which require significant investment in marketing
and consistent promotion. Companies such as Virgin Atlantic and Apple adopts
differentiation leadership by targeting larger markets and positioning their
products quality superiority, global brand loyalty uniqueness to the market. Despite,
cost reduction through economies of scale, Virgin Atlantic and Apple continue
to charge premium prices on its products and services.
Although, none of the Porters’ generic strategies includes the possibilities of tax avoidance creating competitive advantages. However, some commentators believe that tax avoidance increases the shareholders’ wealth and the companies’ value thus, encouraging investors to increase investments with the hope of increasing their wealth. Furthermore, some observers consider that these extra investments enable such companies to oblige their host countries into offering tax avoidance deals in return for inward investments and jobs creation in their countries.
