- The third study, “Failing Concerns: Business Bankruptcy in Canada” (Baldwin et al., 1997),
investigates the characteristics associated with failure. The major findings of this study are
that internal and external factors are equally responsible for firm failure. Internal factors are
more important among firms that are less than five years old. Major internal deficiencies,
particularly in these younger firms, fall into the area of management capabilities.
- For the 1991-95 period, it was found that 3 per cent of new firms i) start with at least
US$100 000 in first year sales; and ii) generate at least 20 per cent annual sales growth.
Gross job creation tends to be concentrated among such high-growth firms or “gazelles”
(Birch, et al., 1996) that are found in all economic sectors, accounting for 6 per cent of start-
ups in manufacturing, 3.4 per cent in trade (wholesale and retail), 2.4 per cent in finance,
insurance and real estate (FIRE); 2.1 per cent in services; and 3.5 per cent in other
(agriculture, mining, construction, and transportation, communications and utilities).
Smaller firms, including high-growth firms, are a major source of job growth in all of the
nine major regions of the United States.
- In an analysis of all sectors of the US economy before 1976-88, it was found that 31 000, or
4 per cent, of the 814 000 firms created in 1977-78 were responsible for 74 per cent of the
gross employment growth of the entire cohort by 1984 (Kirchhoff, 1994, p. 187). After
eliminating those firms that recorded “unbelievable growth”, firms with growth rates in
excess of 300 per cent (an average of 50 per cent per year over six years) were considered
high-growth (Kirchhoff, 1994, p. 178-179).
- Analysis was carried out using data provided by representative samples of new firms
1-6 years old in all economic sectors from Minnesota (1985 sample), Pennsylvania (1994
sample), and Wisconsin (1993 sample). About 8 per cent of these firms had both growth and
initial annual sales above the median (high-growth, high-start). They were responsible for
15 per cent of the jobs, 27 per cent of the sales and 40 per cent of the out-of state exports of
the cohort (Reynolds and White, in press). The top 2 per cent of the firms from the
Minnesota and Pennsylvania samples with at least two years of sales accounted for 10 per
cent of the jobs created in the cohort (Reynolds, 1993).
Given this diverse and incomplete assessment of firm growth, its relationship to age, and its
contribution to overall economic growth, there is clearly a strong justification for a more careful
This case study uses the database of the Ministry of Industry and examines the complete set of
23 000 manufacturing firms with more than 20 employees in 1994.
- The first analysis shows that half the enterprises were permanent throughout the period
between 1985 and 1994. These permanent enterprises lost jobs equivalent to 10 per cent of
their aggregate workforce, but these job losses stemmed solely from very large firms with
over 2 000 employees. This confirms the observation of concentration of job losses in a
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small number of firms. No analysis has yet been conducted concerning job creation but a
similar pattern of concentration is likely.
Comparisons across European countries have been carried out in an extensive analysis sponsored
by the European Commission. The study shows that during 1989 and 1984, a period of recession, 500 of
Europe’s most dynamic entrepreneurs increased employment levels in their companies by almost 160 per
cent. The report focuses on these entrepreneurs and explains how they managed to create jobs during a
period of rising unemployment across Europe:
- These dynamic entrepreneurs are typically male, aged 40-50, generally have a university
degree, consider themselves to be “trained professionals”, and rate themselves most highly
on skills typically associated with general management. They are typically “team starters”,
but at the same time they own a majority of the company’s shares and seek to maintain its
- Dynamic entrepreneurs are found in all the European countries and in all major sectors, but
there is an above-average representation in the service sector. The majority of the
entrepreneurs selected for Europe’s 500 have pursued well-defined strategies to achieve
rapid rates of growth. Their strategies are proactive and outward-looking, based on product
differentiation rather than low cost. Quality is their watchword throughout their
organisations and in the products and services they offer. They like to be financially self-
reliant to the greatest possible extent, but say that people are the key to their success. They
devote enormous energy to creating and then maintaining a highly motivated and well-
A tentative summary of the characteristics and strategies of high-growth firms
From the above-mentioned US and Canadian studies and Europe’s 500, a number of features
emerge which appear to characterise HGSMEs:
- Innovation and attention to human resources are most strongly related to growth. Regardless
of sectors, innovators grow faster than no-innovators. At the earlier stages management
capabilities are crucial to survival. As the firm matures, human resource and innovation
strategies increase in importance. By the time the firm has reached an established stage, its
management and human resource capabilities are typically quite developed, and growth is
more closely associated with innovation.
- Faster-growing successful entrants are almost twice as likely to innovate as slow-growing
firms. Similarly, fast-growth firms place more emphasis on strategies relating to enhancing,
updating or expanding their product line, and improving production. Successful fast
growing entrants are those that translate their strategic emphases into action by undertaking
R&D, innovation and training.
- Successful fast-growing firms place greater emphasis on hiring skilled employees and
motivating their employees.
- Balance -- an emphasis on striving to enhance their capabilities in all areas -- is a consistent
theme among faster-growing firms. Nevertheless, balance appears to be more important to
growth in the high-knowledge sectors than in the low-knowledge sectors.
Main barriers to HGSMEs and policy implications
- Market failures in capital markets can make it more difficult to obtain financing than is
justified by the potential of start-up and small firms. As mentioned above, faster-growing
successful entrants tend to be more innovative than slower ones. However, given the risk of
knowledge investments, firms will undertake sub-optimal amounts of this type of
investment, both because they cannot be guaranteed to reap the rewards and because they
cannot get financing for it.
- Government regulations and policies are seen by the entrepreneurs of the fastest growing
firms as the main obstacles to the development of their businesses. Entrepreneurs rate
bureaucracy, social security contributions, company taxes, personal income taxes, fiscal
policy and labour law, in that order, as representing the governmental interference with the
most negative impact. In general, entrepreneurs indicate that indirect labour costs are a
barrier to growth.
- Access to foreign markets is also considered to be difficult for small businesses. Exchange
rate fluctuations, identifying and prospecting markets, different technical standards,
discriminatory public contract award procedures and bureaucracy all represent barriers to
international trade and globalisation.
- Access to existing technologies should not be hampered by lack of information, insufficient
bargaining power of SMEs or abuse of dominant positions by large firms.
- Difficulties in recruiting qualified staff and skilled workers are also considered a major
barrier to the fast growth of small business.
On a preliminary basis what can be said about the role of government? The broad findings of
these studies tend to indicate that the role of government should be oriented towards ensuring a supportive
business environment for SME growth. The results also show that, although new and small hi-tech firms
have a potential to grow fast, they are far from being the only group of successful high-growth entrants.
Therefore, governments should have a broad scope for action and should look for ways to promote
knowledge investments in order to overcome the underinvestment problems faced by SMEs in general.
Governments can help by focusing on the timely provision of vitally needed information, knowledge and
expertise, in particular with regard to access to foreign markets, access to technology, skill building and in
encouraging the creation and support of business networks.
Women-owned SMEs are growing at a faster rate than the economy as a whole in several OECD
countries. The potential of women-owned SMEs for job and wealth creation, as well as innovation, is
increasingly focusing the attention of policy makers on this sector and was recently the subject of the
“OECD Conference on Women Entrepreneurs in SMEs” held on 16-18 April 1997. While data and
statistics on this phenomenon are not available in all Member countries, the following information appears
to indicate the importance of this trend throughout the G7 countries:
- In the United States, in the last several years, the number of firms created and managed by
women has grown twice as fast as those set up and managed by men. Recent statistics
indicate that approximately 8 million businesses are owned and managed by women in the
United States. According to the same source, one out of four private sector jobs in the
United States is provided by firms headed by a woman. Three out of four female-owned
companies stay in business longer than three years, compared to only two out of three male-
- According to the Japan Small Business Research Institute (JSBRI), 23.3 per cent of private
Japanese firms are set up by women (2.56 million of 11 million).
- In Germany, women in the new German Länder have been responsible for the creation of
one-third of new firms since 1990, representing 1 million jobs and US$15 billion in turnover
- In France and the United Kingdom, one out of four firms is headed by a woman.
- In Canada, women own and/or operate 30.3 per cent of all firms, and the number of women-
led firms is increasing at twice the national average.
This trend is also evident in other OECD countries: in Australia, one-third of existing firms are
now owned and managed by women, while in the Netherlands and Denmark, one-third of new enterprises
are held and managed by women.
The need to improve economic performance and social well-being today calls for a closer look at
the contributions and needs of women-owned SMEs and for the implementation of commensurate
structural reforms. This is true for a number of reasons: facilitating the development of women-owned
SMEs allows societies to capitalise on the skills of educated and trained women who may be blocked in
corporate advancement because of the “glass ceiling”; the increased flexibility inherent in owning one’s
own business allows women to contribute to the income of their families while balancing their work and
family responsibilities, thus enhancing social cohesion; lastly, the resulting economic independence
reduces disparities between men and women, thus leading to a more active and representative role by
women in the economic and political life of their countries.
While the numbers provided above indicate the growing importance of this sector, the economic
potential of women entrepreneurs remains partly untapped. Research indicates some unique
characteristics of, and barriers to, women-owned businesses. Although these characteristics are tentative
and further research is needed, they must be taken into account when addressing how women
entrepreneurs can best realise their potential:
- Women tend to establish enterprises in sectors and under legal structures which are different
from those chosen by men. In the United States, men represent 75 per cent of independent
businesses whereas women represent 70 per cent of family businesses. In all OECD
countries, a great majority of businesses run by women are in the wholesale and service
sectors. Estimates from a poll of 17 000 women in several European countries (with the
exception of Spain and Portugal) show that nearly 5 million women work independently.
Almost 46 per cent of these women are in retail, 12 per cent in the beauty and skin care
business, 10 per cent in professional services (doctors, lawyers, etc.), 9 per cent in crafts and
only 1 per cent in the manufacturing sector.
- In some countries, female businesses seem to have a higher rate of failure than male
businesses. This phenomenon seems to be related more to the type of business chosen than
inadequate management but may also reflect barriers to their operations. In other countries,
the opposite is true, which has been argued to be associated with the more risk-averse
attitudes of women entrepreneurs.
- Access to capital is one of the principle barriers encountered by women entrepreneurs.
Women tend to be risk-averse and borrow less capital than men, raising their average cost of
- Women are less likely to seek counselling and expert advice in starting up and developing
their businesses. This is due in part to their unawareness of the existence of these services,
and because women’s enterprises (due to their size and sector) are often not targeted by SME
- Women often lack networks which would allow them to facilitate business development,
know-how concerning corporate and public sector procurement, and mastery of technologies
that would enable them to penetrate new markets.
- In certain countries, women co-entrepreneurs who are part of a family business do not
always receive retirement benefits that take their contribution to the enterprise into
consideration. Spouse-partners also face the added problem of obtaining social security
- In the 1990s there has been a tendency towards the development of support services for
women entrepreneurs. This seems to be more prevalent at the regional than the national
level. National programmes tend to be more motivated by concern for equal opportunity
than in encouraging female entrepreneurship.
Policy implications and recommendations
A broad set of recommendations emerged from the “OECD Conference on Women
Entrepreneurs in SMEs” for actions to be taken by government, business and financial institutions.
Among these are:
- The knowledge of women's entrepreneurship should be deepened with a view to increasing
the overall effectiveness of SME policy. In this context, the OECD should play a leadership
role, and in particular encourage and facilitate the collection and standardisation of statistics
and data on SMEs, including women-owned SMEs, on a worldwide basis.
- Best practices in the financing of women entrepreneurs should be identified, with particular
attention to the role played by “business angels”, equity or quasi-equity formation (including
tax-driven mechanisms), guarantee programmes, women’s loan funds, micro-business
financing programmes, and training and counselling programmes linked to financing.
- OECD Member countries should be encouraged to define the mix of private and government
actions required to improve access to capital for women entrepreneurs. Research should
analyse the nature and value of “intellectual capital” so as to provide financial institutions
with new elements to consider in evaluating credit risk.
- International networks of existing national women entrepreneurs’ associations should be
encouraged and strengthened in partnership with government and corporations.
- Technology use should be promoted to improve competitiveness and networking. Education
and training in technology and business skills should be provided to women business owners
in centres, educational institutions and, through technology, in the home.
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