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News : Innovation Last Updated: Aug 7, 2015 - 8:00 AM

Business startup rates up in most OECD countries led by Australia and UK
By Michael Hennigan, editor of Finfacts
Aug 6, 2015 - 7:26 AM

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Business startup rates in OECD countries have generally risen since the crisis — particularly in Australia and the United Kingdom — but they remain below pre-2008 levels in many Euro Area economies.

The OECD says that in most countries, with the exception of Germany, Italy and Finland, new enterprise creations have been on an upward trend since the height of the crisis, particularly in Australia and the United Kingdom, and in Denmark, Portugal and Sweden in more recent periods. In France levels of new creations continue to be boosted by legislation supporting auto-entrepreneurs introduced in 2009. Data for Ireland is not available.

The OECD’s latest Entrepreneurship at a Glance report says the services sector continues to drive the creation of new businesses overall

Startup rates in construction, although high, fell in most countries in 2012, the latest year for which internationally comparable data is available. In Portugal, for instance, 10% of construction jobs were lost in 2012 through failures or closures. The number of jobs created in new Portuguese construction businesses was less than a third of those lost. In most OECD countries, the construction sector has shed nearly half the number of jobs it had before the crisis

The number of firms and jobs in manufacturing fell in most OECD countries between 2008 and 2012. Only in Germany did employment grow in the manufacturing, business services and construction sectors

The report says young enterprises are important conduits to higher productivity through innovation and creative destruction. They accounted for between 4% and 12% of total employment in most countries in 2012. However, low survival rates in the tougher market and tighter financing conditions since the crisis have meant that their contribution to overall employment remains generally weaker than before 2008. Latest data show that in many countries the average size of young enterprises changed relatively little over their first three years

Wide differences exist between countries in the diversity of their firm’s export markets, the report says. Although around 90% of the value of German and UK exports are made by companies exporting to more than ten markets, nearly three-quarters of German firms export to only one market, twice the rate of UK firms. In general, trade remains regional, with small and medium-sized enterprises (SMEs) in particular tending to export disproportionally more to neighbouring countries. In a number of nations, such as Spain and the Netherlands, the contribution of SMEs to trade with emerging economies, notably China and India, is significant and growing

Larger firms are on average more productive than smaller ones, particularly in the manufacturing sector, partly reflecting gains from increasing returns to scale through, for instance, capital-intensive production. But the report says some smaller firms often outperform larger ones, pointing to competitive advantages in niche, high-brand or high-intellectual property content activities. The OECD says that the intensive use of affordable information and communication technologies also plays a key role.

The 34-member country think-tank that includes all of the 27 developed countries, says that "more than half of startups fail within the first five years, with rates of surviving firms varying from less than one in five firms in Lithuania to about two-thirds in Sweden. In Austria, Belgium, Luxembourg, the Netherlands and Sweden, the survival rates of startups are consistently higher than in other countries, independently from the birth year. Average employment in newly born enterprises typically ranges between two and three persons employed. The size of startups is significantly higher in the United States, where new enterprises employ on average more than seven persons."

Despite the relatively high probability of failure, one-year-old firms in most countries generate more employment than new firms, and two-year-old firms have relatively similar shares, reflecting employment growth in surviving firms.

The reports says that while few in number, fast-growing firms employ a considerable number of persons. In 2012, 36 000 high-growth enterprises in the United States employed more than 8 million persons. High-growth enterprises represent on average a small share of the total enterprise population. Typically, when measured on the basis of employment growth, the share ranges between 2% and 6% for most countries, with higher shares (between 5% and 15%) when measured on a turnover basis. In all countries, high-growth firms are more prevalent in the services sector than in the rest of the business economy, apart from Brazil, Canada, Latvia and New Zealand where the highest percentage of high-growth firms is in the construction sector.

Venture capital investments were higher in 2014 than in 2007 in very few countries, including Hungary, Korea, the United States, the Russian Federation and South Africa. In the majority of countries, the average investment per company has declined compared to the pre-crisis level. In Israel and the United States however, it is well above the 2007 average. Generally, venture capital provides a financing option in less than 0.1% of firms, predominantly during their startup phase. Significant cross-country differences exist in the type of companies likely to receive venture capital investments. In 2014, in the United States, nearly half of all investments were in computer and consumer electronics firms, over double the rate in Europe, where around one-third of all investments went to life sciences companies.

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