sme ‘happiness’ under the tories and labour · 2018. 5. 31. · sme ‘happiness’ under the...

CBR Summit: Innovation and Governance 29-30 March 2006

SME ‘Happiness’ underThe Tories and Labour

Andy CoshAlan Hughes

Centre for Business ResearchUniversity of Cambridge

David StoreyCentre for Small and Medium Sized Enterprises

Warwick Business School


Presentation Structure

Utilise the SME surveys and a matched panel approach to examine the ‘happiness’ of SMEs

Assume SME happiness depends upon:• Survival• Growth• Profitability

• Ability to achieve business objectives

So, did this vary in the years of a Tory and Labour governments?


Economic Indicators and the CBR Survey Periods

-2.0

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

%

GDP grow th(constantprices) %paShort-terminterest rate %

RPI inf lation %pa

Unemployment%


Levels and Changes in the Stock of UK VAT based Enterprises 1984-2005

2.020%

1.915%

1.8

10%1.7

5% 1.6

1.50%

1.4-5% '84 '85 '86 '87 '88 '89 '90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05

1.3

-10% 1.2Percentage Change Total

Source: UK Business: Activity, Size and Location 2005 (ONS October 2005)


Supporting the Enterprise Economy

• Small Business Support Policy 2001/2– Tax Breaks £2.6 billion– Government Support Expenditure £2.5 billion

• Support Expenditure Breakdown– £622m financial– £296m in kind– £463m advice– £1157m mixed

• Support Expenditure Targeting– Universal £740 million– Targeted £1.8 billion

• Underestimatee.g. excludes skills vocational spend c £1.6 bln in 2003/4

Source: Cross Cutting Review of Government Services for Small Businesses 2001


The CBR SME surveys

• The CBR has carried out SME surveys in 1991, 1995, 1997, 1999, 2002 and 2004 and published the findings.

• They cover British firms up to 499 employees in both manufacturing and business services.

• Have used a panel approach. By 1997 the 1991 panel of about 2,000 firms had declined – 27% had failed and 14% had been acquired.

• The new 1997 panel of about 2,500 firms showed a similar decline – by 2004 32% had failed and 14% had been acquired.


The Tory and Labour Panels

• The sample consists of 3,426 firms– 1,713 firms drawn from the 1991-1997 and 1997-2004 panels

• Samples matched by size, age and 6 broad industrial sectors.

• In each year there are:– 914 older and 794 newer (10 years, or less, since startup)– 524 firms with less than 10 people,

910 firms employing 10-99 people, 279 medium-sized firms employing between 100-499 employees

– 972 firms in manufacturing, of which 109 high-tech 741 in business services, of which 132 high-tech


Survival and Acquisition : Tory and Labour Six year cohorts

17.5%26.2%56.4%LABOUR

13.7%26.8%59.5%TORY

AcquiredFailedSurvival


Death and Survival

• Some decline in survival rates over the six year periods

• Some increase in acquisition rates under Labour • Failure rates do not differ between Tory and Labour

years

BUT

• They do vary by firm size• And by sector• Now examine separately the characteristics of failed

and acquired firms and the growth of the survivors.


Six year Failure rates by size: Tory and Labour Panels

26.2%15.3%25.2%33.5%LABOUR

26.8%17.9%25.1%34.5%TORY

All sizesMediumSmallMicro


Six year Failure rates by sector: Tory and Labour Panels

29.6%33.3%23.7%16.7%LABOUR

33.3%34.8%22.6%13.8%TORY

Conventional business services

High tech business services

Conventional manufacturing

High Tech manufacturing


Who failed?

TORY LABOUR TORY LABOUR

Age - - Constraints: Size - - Long-term finance + + Hitech o o Short-term finance + + Profit Margin - - Management skills o o Growth o o Marketing skills o o Growth objectives o - Demand constraint o o Innovative - o Competition o + Training - -

Incorporated - - o = no difference between failed and survivorsEstablished due to unemployment o + +(-) = significantly

larger (smaller) Bold = 5% or better


SME Failure Characteristics

• Younger and smaller• Higher failure in business services than manufacturing • Less dynamic• Lower profit margin• Less common for incorporated businesses• Less innovative• Less likely to be training• Concerned about availability and cost of finance• Little difference between Tory and Labour


Survivors’ growth rates(% p.a.)

Significantly lower during the Labour period

3.52.2LABOUR1997-04

4.43.4TORY1991-97

Salesgrowth

Employment growth

Median growth rates (% p.a)


Survivors Growth Performance under Tory and Labour

0%

5%

10%

15%

20%

25%-3

0,-1

0

-10,

-5

-5,-2

-2,-1 -1,2 2,4

4,6

6,9

9,12

12,1

6

16,2

0

20,2

5

25,3

0

30,3

5

35,4

5

45,1

05

Sales growth % pa

% o

f firm

s

Tory

Labour


Growth

• In 2004 firms showed slower growth in the previous three years than earlier surveys.

• Fewer than half of the firms increased their number of employees over the period 2001-04, but two-thirds exhibit sales growth. These figures compare with 56% and 75% for the period 1994-97.

• The distribution of growth rates is highly skewed – the top 10% of growth SMEs 2001-04 account for an

employment increase of 6,250, but the whole sample shows an increase of only 2,000 employees

– The equivalent figures for 1994-97 show half of the total employment growth coming from the top 10%


Constraints on ability to meet business objectives:the survivors under Tory and Labour

• Firms were asked about the perceived severity of constraints on meeting their business objectives on a scale from 1 = insignificant to 5 = crucial

• We now look at businessmen’s perceptions of those constraints in those firms that survived throughout either the Tory, or the Labour period

• We look at the constraints at the beginning of the period, at the end and consider the changes in constraints during periods of Tory and Labour rule.


Significant or crucial constraints on ability to meet business objectives: Tory and Labour Panels I

28, 232338Marketing and Sales skills

22, 191734Management skills

20, 261930Skilled labour

22, 192251Availability and cost of finance for working capital

26, 203051Availability and cost of long term finance for expansion

Tory Panel in last year (1997)/ Labour Panel in Last year

Labour Panel in first year (1997)

Tory Panel in first year (1991)

% of firms saying very significant or crucial constraint:


Significant or crucial constraints on ability to meet business objectives: Tory and Labour Panels II

8, 11916Difficulties in implementing new technology

33, 312741Increasing competition

28, 242452Overall growth of market demand in principal product markets

7, 6815Access to overseas markets

8, 71219Availability of appropriate premises or sites

10, 71118Acquisition of technology

Tory Panel in last year (1997)/ Labour Panel in Last year

Labour Panel in first year (1997)

Tory Panel in first year

(1991)

% of firms saying very significant or crucial constraint:


Constraints: Key findings I

• 1991 is clearly a severely difficult year on all fronts• By 1997 conditions had clearly improved• In 2004 conditions look broadly similar, but slightly better

than, 1997• In 1991 a shortage of overall aggregate demand,

together with access to finance was key• By 2004 increasing competition is the key constraint• Access to finance has consistently “improved”, and is in

fifth place


Constraints: Key findings II

• Nowadays obtaining skilled labour, marketing and sales skills, shortages of aggregate demand and increased competition are all regarded as more severe constraints than access to finance

• Amongst the constraints that rarely appear are : access to overseas markets, availability of appropriate sites and premises and the acquisition of technology

• Now turn to survivors’ growth performance


The 1991, 1997 & 2004 Matched Samples

• We draw a new matched sample to allow us to examine changes in the SME sector during Tory and Labour rule

• The sample consists of 3,387 firms– 1,129 firms drawn from the 1991, 1997 and 2004 CBR surveys

• Samples matched by size, age and 6 broad industrial sectors.

• In each year there are:– 777 older and 388 newer (newer 10 years or less since startup)– 276 firms with less than 10 people,

667 firms employing 10-99 people, 222 medium-sized firms employing between 100-499 employees

– 682 firms in manufacturing, 483 in business services


Profit Margin on Sales by Size of Firm

• Profit margin rose and then fell for the sample as a whole between 1991 and 2004.

• By 2004 the median profit margin on sales was lower in all size classes than it had been in 1991.

• Micro-firms exhibit the highest profit margin in each year in the survey.

• The recovery of profit margins between 1991 and 1997 may reflect the general macro-economic improvement between those two survey dates. – The relatively marked improvement for the micro-firms may

reflect the relative severity of the impact of recession on these firms in 1991.


Median Profit Margin by Size Group

199119972004

19

0

2

4

6

8

16

18

20

15

10

12

14

% o

f Firm

s

13

9987 77

654

Micro Small Medium All


Innovation, Training and Exporting

• Little change in proportion of firms exporting over the period as a whole– Percentage exporting rose, then fell in the period 1991 to 2004.

• Proportion of firms reporting formal training remained relatively steady throughout the period as a whole.

• Very little change in proportions of firms introducing new or significantly improved products, new or significantly improved processes, or innovations of any kind, including logistics and distribution activities.


Innovation, training and exporting(% of firms)

199119972004

807170 696968 6670

6261 6060 53 5251

% o

f Firm

s

4850 434240

30

20

10

0% exporters % trainers % product

innovation% process innovation

% any innovation


R&D Activity

• The proportion of firms reporting that they carried out R&D activity halved between 1991 and 2004.

• Decline was common across all size classes.• Decline was most marked amongst micro-firms where the proportion

fell from 68.4% to 22%.• The proportion of staff involved full- or part-time on R&D remained

stable between 1997 and 2004 in all size classes. It rose substantially from 1991 to 1997 for small firms, but this reflects the relatively small number of employees involved in the micro-category firms.

• Implication of these trends is that overall R&D activity is lessfrequent, but the typical number of employees involved in it hasremained relatively stable since the 1990s.

• Is R&D per se capturing the full range of innovation inputs?


Firms carrying out R&D

199119972004

68.4 69.7

78.3

71.1

36.0

52.4

70.4

52.2

22.0

40.1

53.0

38.4

0

10

20

30

40

50

60

70

80

90

Micro Small Medium All

% o

f Firm

s


Performance of SMEs under Tory and Labour

• Slower employment and sales growth amongst the survivors over the Labour years compared with the Tory period.

• The % of firms exporting rose during the Tory years and then fell back again during Labour rule.

• Profit margins rose from a low ebb over the Tory period, but fell back somewhat under Labour.

• Few differences between the % of firms training, or those carrying out innovations during the periods of Tory and Labour government.

• Marked decline in the proportion of firms engaged in R&D during both periods.


Desired Policy Changes 1

• In 1991 and 2004 respondents were asked to write in the most significant policy changes they would like to see introduced.

• The five most frequently cited areas of policy change in 1991 and 2004 were:– Tax reform, stable economy, less regulation, more regulation,

better government support.

• Major changes occurred between 1991 and 2004.


Desired Policy Changes 2

• The macro-economic stability of the past decade has significantly reduced the desire for policies to produce a stable economy.

• By far the most important area of concern in 2004 is the desire for less regulation, which has increased in frequency from 10% to nearly 35% of firms citing this as an area for desired policy change.

• Firms were equally concerned in 2004 and 1991 about a variety oftax reforms to promote their performance and the returns from operating a business.

• The desire for better government support has increased between 1991 and 2004.

• The desire for more regulation to promote small business activity has fallen slightly over the period.


Desired policy changes 1991 and 2004

0

5

10

15

20

25

30

35Tax reform

Less regulationMore regulation

Better government support Stable economy

1991 2004


Scorecard

-+SME over-regulation

+-Economic environment

++SME finance constraint

o+Profitability

--SME innovation

+SME growth rates

ooSME failure rates

LABOURTORY


Conclusions

Three elements of happiness: • SurvivalNo difference in failure over Tory and Labour years.Increase in acquisition ‘deaths’• PerformanceSlower growth rates during Labour rule, and profitability also fell

back.Significant decline in the proportion of firms engaged in R&D,

but few other performance differences.• ConstraintsThese were exceptionally high in 1991, fall sharply to 1997 and

fall marginally to 2004.The big change looks to be the improved access to finance


Worrying features

• No decline in failure rates despite:– Better access to finance– More government support– More stable economic environment

• Increase in acquisition departures and these firms are more dynamic on average, but little information about what happens to these firms post-acquisition

• Whilst there is no decline in the proportion of firms that are introducing innovations, we do find a marked decline in the proportion engaged in R&D after allowing for size, age and sector.

• Does the Community Innovation Survey find the same?

sme ‘happiness’ under the tories and labour · 2018. 5. 31. · sme ‘happiness’ under the...

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