Business Births and Deaths

3 Feb 2011

 

 Business Births and Deaths

With more businesses dying on their feet than thriving, Phil Cooper, Chief Executive of Venture Wales, an organisation working directly for SME development, looks at how we help reverse the tide of failing businesses in Wales. 

The business community will be shaken by recent news that more firms are going bust than are being set up in the UK.  According to latest research from the Office of National Statistics, the number of business deaths has outnumbered the number of business births for the first time. 

This casts a long shadow on the future of many small and medium-sized enterprises (SMEs) across the UK, a shadow that stretches into Wales.  Welsh Assembly Government figures highlight that Welsh SMEs are subject to the same fate.  In 2009 8,300 businesses were set up in Wales only for 10,200 businesses to cease trading in the same year.

These figures confirm that SMEs across Wales are still being crippled by after effects of the recession and continue to be vulnerable in this period of uncertain economic growth.  The government’s job is to create the right conditions for our fragile economy to get back on a path of growth.   Recovery is about jobs as more jobs means faster economic growth and greater income for the Government.  Small businesses in Wales have a huge role to play in job creation, but instead we’re seeing them fold, faster than they are developing. If the small firm sector is to prosper, we must have a joined up economic development policy which provides the right support tailored to the needs of both new and existing firms.

There are many challenges being face by small businesses in Wales which is why it’s hard to pinpoint an exact reason why we are seeing more business deaths than births in Wales.  But there are some policies, or the removal of, that seem to have more of an impact on mall business success.  In particular, WAGs removal of support for existing firms could be one factor in the rise number of business fatalities.  

In Wales, employment relies heavily on smaller independent firms and bolstering this sector is crucial if our economy is to recover and compete effectively in the years ahead.

Indeed new start ups and strong expansion of existing small firms will be the life’s blood of economic progress and net jobs growth in the short and medium-term. 

Consequently there’s a real need to encourage innovative start ups and nurture existing enterprises. But if businesses are dying is it time to think about how we can support these troubled companies and protect and safeguard the jobs they offer.

There is specific mention in WAG’s Economic Renewal Programme of protecting start ups, but we also need to ensure that we’re also supporting businesses that provide high economic impact.  

 

However, WAG’s policy to focus support for existing firms only on firms in six sectors penalises the excellent firms in other sectors of the economy which have proven job creation capabilities.  In de-prioritising support for firms outside the chosen sectors, the Assembly could be harming rather than helping businesses who might already be struggling and risking any employment-creating prospects.

 

Growing SMEs need to have access to both low and highly skilled workers.  They also have a healthy appetite for cash and need the ability to be able to borrow in order to fund development.  Unfortunately both skills and investment are in short supply.  Innovation is critical for the future development and competitiveness of growth firms but Wales’ innovation policy has focused more on landmark buildings to house innovative firms than on helping with research and development costs. 

Productivity also requires investment, and the repayable grant system to support research and development and capital investment simply does not work on pre-revenue innovative projects.  The closure of our international division is also a worrying sign when growth firms need to look outside the UK market for expansion.  Wales is particularly vulnerable here as we have the smallest percentage of firms who embark on an internationalisation journey and we should be doing more to encourage growing businesses to explore opportunities beyond our borders.

One way to help small businesses is to reduce the red tape and bureaucracy.  Entrepreneurs tend to favour approaches that are high on innovation and low on bureaucracy.  But, what will really help SMEs is a joined up approach from both public and private sectors.  By working closer together both parties could capture the enormous goodwill of those who want Wales to succeed in developing a more robust economy with a stronger indigenous business base.  

 

While supporting existing firms, we must also continue to encourage new businesses and therefore reverse the ongoing decline in start ups we’ve seen since 2004.  Simple steps such as the resurrection of the Entrepreneurship Action Plan to create greater awareness of the opportunities and benefits of entrepreneurship to encourage more people to start and grow a business and to develop a greater entrepreneurial culture in Wales would be a good start.

What is comforting is that businesses in Wales are more likely to survive than those in England, which may indicate that WAG’s existing start up programmes are doing something right, but perhaps they still need to be doing more.

The face of business support in Wales is evolving and we must ensure that these changes are for the benefit of businesses as our economy hangs on their success.  Best practice in economic development results from a true partnership approach where the interdependent organisations involved in the process of making an advisory service available to SME clients have clear direction and an agreed vision or common purpose shared by all stakeholders.

Let’s learn from the most recent business births and deaths figures and let’s more forward, focusing on turning the tide and reviving the future prospects for SMEs in Wales.