Introduction
There are various studies that have been carried out in the United Kingdom, Canada and the USA on the survival of new businesses in the region over a particular period of time. The last study conducted in the USA looked at the businesses formed during the boom period of the 1990’s till 2001. The research results data incorporated information from the Minnesota Department of Economic Security. The department had released a report examining firms that had been formed and survived or exited the industry in the year 1993 to 1995. The study looked at the firms the whole decade, especially to see how the firms survived the economic recession of 2001. All the industries were examined. The report also looked at the employment statistics of the companies that had survived the decade. The research was done on 8.2 Million business establishments which were in the private and public sector. The information was retrieved from the BLS Quarterly Census of Employment and Wages. The results of this study did not vary much with the previous study.
An analysis of all the establishments was done, both large and small, that were started in the year 1998 to 2001. Several steps were taken to retain the integrity of the data. The birth of a business had to have occurred in the relevant period under study. The progress of the businesses was examined for a period of ten years. The analysts checked to ensure that establishments that had closed then reopened were not in the data. There was also careful analysis done to ensure that the new businesses that had administrative or shareholding links with prior existing businesses were not included in the study. The firms that had opened in one location, closed and reopened in another location were also eliminated. Failure to eliminate the businesses mentioned in the above situations would have skewed the data findings.
Using the analysis, a total of 212, 182 businesses were examined for the mentioned period. It examined the businesses’ births, survival rates and deaths during the period. The analysis revealed that across the sectors, 65% of the new businesses were still operational two years after they had been formed. Four years after the birth of a business, only 44% of the businesses were in existence. The ratios do not vary much from the study of survival of firms conducted in 1998. The results showed that the IT industry was the industry with the lowest survival rates of business after 2 and 4 years. After 2 years the survival rate was at 63% while after 4 years the rate was 38%. The industry that had the highest rates of survival was the Education and Health services where the survival rates at the second and fourth year was at 73% and 55% respectively. The leisure and hospitality sectors had a survival rate of 65% and 44% percent at the second and fourth year respectively (Knaup, 2005).
One looks at the survival rates by checking whether the establishments in the second to fourth year, whether were in existence in the first year. It does not necessarily mean that a business has a higher chance of surviving into every subsequent year however. In the study taken, there were only three industries that exhibited the increasing survival tendency every subsequent year. These were the natural resources and mining, education and the health industries. For the information technology sector, interestingly, the tendency for the firm to thrive and survive every subsequent year had a negative trend.
A look at the growth rate of the companies by looking at the employment rates of the industries revealed that during the four years, the firms in information technology, education and health, manufacturing and professional services maintained their opening level of employment during the entire review period. For the other sectors, they had decreasing rates of employment continually through the successive years. The employment rates can be used to show which companies out of the ones that survived were thriving. In the industry generally though there was decreased employment during the four years due to the recession in 2001. The conclusion from the study therefore shows that those industries that were able to survive were able to grow. For a person examining the success rates of a business they should not just focus on the rate of survival but also combine that information on employment statistics so at to get a clear picture of the business that are surviving.
A five year study was done on the firms rate of survival in the industry for the period 2001 to 2005. A total of 162,000 firms were examined in the mentioned period. The success rate of business survival is influenced by several factors. In the UK, the research showed that there was an increase in the number of firms that were incorporated for the period 2001 and 2003. At that time, the government introduced a tax law that for a company making profits of over £10,000 the tax rate would be zero. Many sole proprietors changed their business to companies to take advantage of the new law. The research revealed that by the end of the year, 2002, 99.2% of the 62,000 firms were still in business. In the year 2003, 2004 and 2005, the rates of survival were 86%, 76% and 69.7% respectively. Overall the data shows that in the five year period, 30% of the firms had exited the industry (Helmers & Rogers, 2010). The focus of the study concentrated in firms that had been incorporated in 1991. This was to avoid looking at the businesses that changed the business type due to the new law. The results of the study on business survival were further analyzed to compare the rate of business survival in firms with registered patents and trademarks and those that did not have. This was to compare rate of business survival with innovation.
A study conducted in Canada looked at several industries growth and survival over a period of 11 years. This was the period 1984-1994. The information for the research was retrieved from the Statistics Canada Database that has all the information on all the employers of Canada both incorporated and not incorporated businesses. By the fifth year since the companies were formed, the survival rates for the good producing industries, agriculture, fishing and trapping, logging and forestry, mining and quarrying, manufacturing and construction were examined. The industry with the highest survival rate was the manufacturing industry at 44%, while the one with the least survival rate was forestry and logging at 31%. By the eleventh year the manufacturing industry still maintained the lead at 26% while the forestry and logging industry was still trailing at 16%. In the sector for the service industries, the analysis on the rate of survival during the eleven years looked at the transportation and storage sectors, communication, wholesale trade, retail trade, finance, real estate, business services and accommodation industries. The industry that showed the highest rate of survival by the fifth year was Wholesale trade at 45% followed closely by finance and real estate both at 44% while the industry that was trailing behind was accommodation, food and beverage at 33%. In the eleventh year the wholesale trade was still leading the pack at 27% and accommodation food and beverage was trailing behind at . For these industries looking at the entry information the rate of entry was highest for the forestry and logging industry at 27% and the least at manufacturing at 11%, while for the service industry, the one with the highest rate of entry was finance at 17%, with the least at wholesale sale trade at 12%. (Baldwin, Bian, Dupuy & Gellatly , 2000). The study showed that the entry and exit rates were related. The industry which experienced the highest number of firm’s entry had the least rate of survival.
Conclusion
There are several studies that have been conducted on business survival rate as it is a very important study. The variation comes in with the core purpose of the study, that is what the researches want to compare the rate of survival with be it innovation, employment rate and entry rate. A person has to go further and know whether the firms that have survived each subsequent year are thriving though at the end of the day. This gives a wholesome picture at the industries.
References:
Baldwin, J., Bian, L., Dupuy, R. & Gellatly , G.(2000). Failure Rates for New Canadian Firms:
New Perspectives on Entry and Exit Retrieved from: http://dsp-psd.pwgsc.gc.ca/Collection/Statcan/61-526-XIE/61-526-XIE1999001.pdf
Helmers, C. & Rogers, M. (2010) Innovation and Survival of New Firms in the United Kingdom.
Retrieved from: http://www.chelmers.com/projects/helmersrogers_survival.pdf
Knaup, A(2005). Survival and Longevity in the Business Employment Dynamics
Data. Monthly Labour Review, May Issue, p 50-56. Retrieved from: http://www.bls.gov/opub/mlr/2005/05/ressum.pdf
