Highlights
- Policies that reduce fixed costs of business operation—such as the Home Office Scheme (HOS) in Singapore that allows home-based entrepreneurship—affect entrepreneurship rates, particularly among low-income and financially constrained individuals.
- The HSO facilitated the entry of novice entrepreneurs and small-scale businesses, increased the likelihood of serial entrepreneurship, and improved the long-term survival rates of new firms.
- The study suggests that workplace flexibility and easing zoning restrictions serve as effective policies for promoting entrepreneurship, and underscores the importance of designing regulations that encourage organisational diversity among potential entrepreneurs.
In this study, the researchers assessed how the Home Office Scheme (HOS) implemented in Singapore facilitated business creation operating from one’s residential property. Working at home can benefit entrepreneurs by lowering fixed costs and letting them engage in market and household production.
The HOS was evaluated by the Ministry of National Development and then implemented by the Housing & Development Board and the Urban Redevelopment Authority of the Singapore government. Its aim was to reduce potential entrepreneurs’ costs of starting a new business. Before the HOS policy, zoning regulations strictly forbade the use of residential addresses for business operations.
Setting up a business typically involves incurring monetary and nonmonetary costs such as securing office space, high rental expenses, covering furniture and fixture costs, and commuting costs.
Setting up a business typically involves incurring monetary and nonmonetary costs such as securing office space, high rental expenses, covering furniture and fixture costs, and commuting costs. Such high start-up costs could prevent the creation of many small enterprises, which the HOS was set up to address.
The new policy allows entrepreneurs in a selected list of industries to register and conduct business activities at residential premises. The goal was to ease the barriers to entry for many small home business start-ups and enterprises. These changes were implemented in two stages, starting at the end of November 2001, and then in June 2003.
Registrations for home office authorisation were completed online, and entrepreneurs could commence their businesses immediately upon successful registration. The permit was valid as long as the businesses remained in operation.
The researchers investigated the heterogeneity of the response to the programme among different entrepreneurs by comparing new business creation induced by the HOS among novice and experienced entrepreneurs. The novice sample included first-time entrepreneurs who did not have prior business experience. Prior studies documented evidence of performance persistence in entrepreneurship, and the results showed that the HOS led to significant entry into self-employment among first-time entrepreneurs.
Three main explanations were identified for why the HOS helped increase firm creation. They were the reduction of fixed monetary costs, workplace flexibility enhancing nonpecuniary benefits, and the reform help failed entrepreneurs avoid the shame associated with having failed in the past. The effect of the HOS programme was relatively higher among entrepreneurs living in poor communities and in subsidised public housing.
Study results also showed that entrepreneurs who opened their first business in a treatment industry after the reform was implemented were also more likely to open a second business. This suggests that the reform encouraged serial entrepreneurship. The HOS also encouraged serial entrepreneurs to open a relatively larger business, and these resulted in similar survival rates.
Two explanations were considered for the increased probability of starting a second business in the treated group: inclusion of serial entrepreneurs in the treatment group, and related treatment effects associated with the HOS, such as reduced entry costs and potentially increased profits and capital accumulation from the first business. The results were interpreted cautiously as the selection effect could not be clearly distinguished from treatment effects.
Although the additional start-ups were also likely to have financial constraints, they exhibited higher survival rates and tended to be created in industries with higher productivity and lower risk.
The results confirmed that regulatory entry barriers with high fixed costs were an important factor deterring entrepreneurship, and removing entry barriers benefited all entrepreneurs and encouraged marginal entrepreneurs to start businesses
The newly created firms exhibited under the HOS had a much higher survival rate over a longer time horizon. The results confirmed that regulatory entry barriers with high fixed costs were an important factor deterring entrepreneurship, and removing entry barriers benefited all entrepreneurs and encouraged marginal entrepreneurs to start businesses. More importantly, it provided additional benefits to financially constrained individuals because they could use the savings on fixed costs to increase investment.
While this study focused on Singapore’s Home Office Scheme, the findings have broader implications for other countries and jurisdictions considering similar regulatory reforms. The analysis highlighted the importance of liberalising regulations over home-based businesses. It also highlighted the value of factoring multiple variables when supporting would-be entrepreneurs, especially around the design of policies that encourage entrepreneurial activities.
Keywords:
Entrepreneurship, Home-based business, Experimentation
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