Archive:Business economy - enterprise demography and inward FATS
This Statistics Explained article is outdated and has been archived - for recent articles on structural business statistics see here.
- Data from January 2009, most recent data: Further Eurostat information, Main tables and Database
This article belongs to a set of statistical articles which analyse the structure, development and characteristics of the various economic activities in the European Union (EU). The present article is part of the business economy overview, and covers:
- business demography;
- foreign-controlled enterprises (inward FATS) - see also the article discussing FATS in detail.
.PNG)
_(1).PNG)
.PNG)
Main statistical findings
Business demography
Annex IX of the recast structural business statistics Regulation provides for a detailed module for the collection of statistics on business demography. It requires the national statistical institutes (NSIs) to produce statistics on enterprise births, deaths and survival rates using common definitions and methodology, which should ensure greater comparability in this field of statistics from the reference year 2008 onwards. Note that for the moment, the statistics presented for this subject have been produced and provided by most of the NSIs on the basis of informal, gentlemen’s agreements.
The starting point for business demography statistics is the concept of the population of active enterprises. These are defined as businesses that had either turnover or employment at any time during the reference period. Data on births and deaths of enterprises, as well as their life expectancy form part of the structural indicators that are used to measure the progress being made towards the European Union's goals set out in the Growth and Jobs Strategy.
Business demography statistics are also a key source of information for analysing entrepreneurial activity. The creation of a new enterprise generally leads to new products or services being offered in a marketplace. In this context, new enterprises can be seen as disturbing market equilibrium and they are therefore often cited as being drivers of competitiveness, as they force existing enterprises to improve their efficiency, while driving inefficient enterprises out of business.
SBS business demography statistics focus on so-called real enterprise births and deaths. Under the definitions employed, births (and deaths) do not include entries into (or exits from) the business enterprise population due to mergers, break-ups, splits or the restructuring of enterprises, nor do they include changes resulting from a change in the enterprise's principal (main) activity.
A birth is defined as an enterprise that was present in year t, but did not exist in the two preceding years. An enterprise is deemed to have survived if, having been a birth in year t or having survived to year t, it is active in terms of employment and/or turnover in any part of year t+1; an enterprise is considered to have survived if it is active in any part of the survival year under consideration. An enterprise death is defined as an enterprise that was active in year t but was no longer present among the active enterprises in the two following years (after checking for any reactivations). It is often quite difficult, statistically, to determine the exact date of cessation of activity with respect to an enterprise death. Indeed, this may well be detected only after a lengthy period (of several years); as such, information presented on enterprise deaths is often provisional in nature and sometimes lags other indicators.
Economic theory suggests that relatively low numbers of enterprise births are likely to be recorded for those activities where high barriers to entry exist, perhaps because a greater level of initial investment in production factors is required to reach a minimum efficient scale of production. Consequently, where barriers to entry (and exit) are lower, as is the case for many services and construction activities, there are generally higher levels of enterprise birth and deaths.
There were approximately 1.75 million newly born enterprises in the business economies of 21 countries for which data are available for 2005 (see Figure 1 for details of the country coverage). To put this into perspective, newly born enterprises accounted for roughly one in every ten (10.1 %) of the stock of active enterprises. Enterprise birth rates were higher for construction (10.9 %) and for services (10.5 %) than for industry (6.4 %).
Figure 1 shows enterprise birth rates and preliminary death rates across a range of NACE sections based on averages compiled from those Member States for which data are available. Real estate, renting and business activities, financial intermediation and construction reported the highest enterprise birth rates (12.6 %, 11.2 % and 10.9 % respectively) and were the only activities (at the NACE section level of detail) to report birth rates above the business economy average.
Based on the available information, a comparison between enterprise birth and death rates can provide some evidence as to net changes in the business enterprise population (note that the number of enterprises may also change as a function of mergers, take-overs, split-offs and break-ups). The birth rate for enterprises within the services sector was 1.5 percentage points higher than the corresponding death rate, whereas for total industry the opposite was observed as the death rate exceeded the birth rate by 1.4 percentage points. The largest difference (5.4 percentage points) between birth and death rates was recorded for electricity, gas and water supply, where the provisional death rate was only 4.7 %. This relatively large difference might, among other reasons, be explained by a recent period of liberalisation within these activities, resulting in the creation of a relatively high number of new energy and water distribution companies.
Among the 21 Member States for which data are available (see Tables 1 and 2), those countries with relatively low/high birth rates also tended to report relatively low/high death rates. Italy, Cyprus (2005), Slovakia (2005) and Sweden were among those countries with the lowest levels of renewing their enterprise populations in 2006, while Bulgaria (2005), Denmark (2005), Portugal, Romania (2005) and the United Kingdom (2005) reported some of the highest rates.
Table 2 also presents information on two-year survival rates. Enterprises born in Slovenia, Sweden and the United Kingdom reported some of the highest rates, as upwards of 80 % of all enterprises born in industry, construction or services survived two years.
Foreign-controlled enterprises (inward FATS)
.PNG)
_(1).PNG)
Globalisation has had a considerable impact on the location of production. Many enterprises have extended their operations beyond national borders in an attempt to (amongst other things) increase proximity to customers, circumvent trade or taxation barriers, reduce costs (labour, transportation or material inputs), guarantee the supply of material inputs, or avoid regulation. Groups of (predominantly large) enterprises are at the core of the globalisation process and may be seen as agents of cross-border transactions, as they control decisions, information flows and strategies across a range of countries.
The qualitative nature of information required to define a group's perimeter can often make it difficult to obtain reliable statistical information on these economic actors. One of the main constraints when trying to measure their activities is that global enterprises make their decisions against a worldwide backdrop, while their decisions continue to be analysed using national data collections.
Aside from exporting goods and services or setting-up a new enterprise, there are a number of other alternative actions that enterprises wishing to diversify into new markets can take – one of the main options is to take control of an enterprise in the new market. Information on foreign-controlled enterprises is covered by inward foreign affiliates’ statistics (inward FATS). For the purpose of the inward FATS data collection, the concept of control is defined as the ability to determine general corporate policy; however, in practice, a share of ownership is often used as a proxy. Inward FATS statistics show that the number of foreign affiliates tends to be relatively low. However, given their comparatively large average size, these enterprises often exercise significant economic influence.
Figure 2 shows that foreign-controlled enterprises accounted for 12.2 % of the workforce in the non-financial business economies of the 16 Member States for which data are available in 2005. The relative importance of foreign-controlled enterprises (using this measure) was considerably higher for the manufacturing sector, rising to 20.0 %. Manufacturing was the only activity (at the NACE Section level) to report that foreign-controlled enterprises provided a higher share of total employment than the non-financial business economy average. In contrast, less than 3 % of the construction sector’s workforce was employed by a foreign-controlled enterprise.
More detailed country information is provided in Table 3, supporting the view that foreign-controlled enterprises had a relatively large average size. Across the countries for which data are available, the share of foreign-controlled enterprises in the total number of enterprises was (with the exception of Estonia) always below 6 % of the total enterprise population, and more generally below a threshold of 2 %. Nevertheless, foreign-controlled enterprises often reported a double-digit share of the non-financial business economy workforce (Cyprus, Italy, Portugal and Spain were exceptions to this rule). Cyprus was also the only country where foreign-controlled enterprises did not create at least 10 % of the total value added generated in the non-financial business economy.
Foreign-controlled enterprises consistently reported a higher share of value added than employment in each of the 17 countries for which data are available for the non-financial business economy – suggesting they were more productive than nationally-owned enterprises. Note that these differences in productivity levels may, at least in part, be due to the larger average size of foreign-controlled enterprises, rather than any inherent difference in productivity levels between nationally-controlled and foreign-controlled enterprises.
Data sources and availability
The main part of the analysis in this article is derived from structural business statistics (SBS), including core, business statistics which are disseminated regularly, as well as information compiled on a multi-yearly basis, and the latest results from development projects.
Other data sources include Eurostat statistics on DEMO.
Further Eurostat information
Publications
- European Business: Facts and figures - 2009 edition
- FATS Recommendations Manual - 2012 edition
Main tables
Database
Dedicated section
Other information
- Recommendation 2003/361 6 May 2003 concerning the definition of micro, small and medium-sized enterprises