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Self-financing, following their dreams and driving economies – research reveals the world of high growth SMEs

Date

13 Jul 2012

Sections

Euro & Finance

- Western European entrepreneurs face skills shortages when it comes to hiring staff

- BRICSA countries chasing Europe’s success 

High growth oriented entrepreneurs – or GOEs - in both developing and developed economies have a strong potential to drive economic growth, finds global research from Delta Economics, undertaken for ACCA (the Association of Chartered Certified Accountants).

The results in High growth SMEs: understanding the leaders of the recovery show that despite the recession, GOEs in BRICSA countries - Brazil, Russia, India, China and South Africa – have been able to develop and grow a company, while those in West, including UK, France, Germany, Spain, the Netherlands, Italy, Belgium and the USA have also shown the ability to expand and prepare for sustainable growth.

However, EU countries face a growing threat from BRICSA countries, both in terms of optimism – Brazil, and growth – China, which has an average turnover of $4.13 million in the last full year of trading and a median growth rate of 453% since start up. This compares with European businesses ranging from 100% to 150% growth rates – from Germany at $2.99 million turnover to France at $1.6 million.

Building a compelling picture of entrepreneurial optimism, the research examines the challenges and difficulties encountered by GOEs, and warns that governments, institutions, banks and professional advisors need to pay careful attention to their needs now and in the longer term.

Dr Rebecca Harding, CEO of Delta Economics says: “Fast-growth entrepreneurs provide many benefits to economies and governments, creating direct employment, paying tax revenues; growing exports; and so stimulating the economy. These modern businesses are likely to be kind to the environment, possibly even as a ‘green’ business; they consider themselves generous to employees and work with their local communities. They need support from governments from creating the right regulatory and tax environment to ensuring that the people they recruit have the skills needed to work for these entrepreneurs.”

Rosana Mirkovic, head of global SME Policy at ACCA adds: “European entrepreneurs are facing down some tough challenges and looking for growth, as can be seen by Germany being Europe’s biggest employers – on average a German growth business will employ 13 people, compared to seven in France and the UK, and five in Italy. It is also clear that European entrepreneurs, like their BRICSA colleagues, are determined and have a resilience to build their dream business - taking support and funding from wherever available. These businesses and others that will follow them are the engines of growth, which will take the global economy out of recession. Accountants need to match this optimism and dynamism, and continue to be trusted advisers to these GOEs.”

Main highlights from the report include:

1. International drive: Internationalisation levels were highest in Europe where three-fifths of UK and European GOEs showed evidence of being international, including marketing or selling overseas, sourcing materials, seeking finance and partnerships.  Just under half of BRICSA businesses claimed to have some international activity, while in the US it was the opposite with three-fifths domestic only.

Our research shows that internationally oriented businesses grow faster than domestic only, and of those that establish as ‘domestic only’ first grow faster still. Hence the path to a fast growth economy seems to lie in encouraging entrepreneurs to initially grow strong in their domestic markets, and then look for international markets to achieve faster growth.

2. Motivations: Entrepreneurs are motivated by four things: following a dream; taking advantage of a market opportunity; getting autonomy over their time and ‘making a lot of money’.

In all the countries covered by our survey, ‘following a dream’ is the most or second most important factor in setting up a business, with over one-half of respondents listing it. Only in Russia was this below 50% (at 41%), but even here it was the third biggest motivator. ‘Taking advantage of the market opportunity’ was important (over 75%) in the US, China, Brazil and Germany, and ‘wanting to make a lot of money’ was a strong driver in the US, China and Brazil (over 70%) but less so in Germany at 51%. While most other countries reported money making as significant, to Italians (3%) and Spaniards (18%) it seemed to have little motivational value.

3. Growth expectations: GOEs are modest about expectations for growth in turnover, with Brazilians being most optimistic, expecting to double turnover in three years, while Chinese are looking for 75% growth and South Africans around two-thirds. The UK and US stand out in the West, with expectations of 60% and 57%, respectively. The Eurozone entrepreneurs show lower expectations for growth (40% or less), with Germany at only 25%.

4. Access to Money: Entrepreneurs in the survey obtained between 60-80% of initial finance from self-investment, most of which came from savings or from personal borrowing with the Eurozone sample showing particularly high investment from savings (France 89%, Belgium 97% and Germany 90%). Borrowing as a business from a bank ranged widely in Europe from 21% in Spain to 60% in the Netherlands; from 52% in France and 47% in Belgium. Despite this, GOEs across the world get most of their initial finance from within their circle, most commonly from savings, family and friends, and very little from external or official sources. Banks need to work harder to support these businesses at the start-up stage especially as the survey found that the key factor for turnover growth is the total amount of initial investment when starting up the businesses.

5. Seeking advice:  European and US GOEs were much more likely to seek professional advice at the start-up stage than were similar entrepreneurs in the BRICSA. In Belgium 81% sought advice from professionals and 76% in Germany while only 43% of South Africans and Chinese did so in the BRICSA sample. As the business develops, professional advice is sought and is seen as a positive influence in all the countries and is actually rated higher in the BRIC countries than it is in the West. Finding these businesses at an earlier stage might provide an interesting market opportunity for professional advisers.

Rosana Mirkovic concludes: “European entrepreneurs are following their dreams, and seeking opportunities, and showing some very impressive growth rates in our study. But continued and sustainable success depends on government policy creation and intervention especially as entrepreneurs also inevitably see the macro economy as a major challenge. Although all governments would no doubt argue they were facing that challenge, the entrepreneurs would suggest that creating the conditions – stipulated above – would go some way to allowing them to lead the way out of recession through innovation, exports, new job creation and ever faster growth.”

Other highlights from the report:

1. Being an employer: BRICSA businesses tend to employ more people than their European or American counterparts, with China employing on average 32 people now and estimated employment growing to 84 in three years’ time. Germany is Europe’s biggest employer, with on average employing 13 people now, and expecting it to grow to 21 in three years’ time. US companies have relatively modest employment rates, employing five currently and expecting it to grow to eight.

2. Age and Gender: The proportion of female entrepreneurs in Spain is surprisingly low at just 9%, while on the global stage China scores highest at 26%. Of those interviewed from the UK, 17% are female, along with France and Italy, and Germany 15%, and Belgium leads the way with 21%. The US scored higher, with 22% being female entrepreneurs, higher than their European counterparts. Age: The average age of growth entrepreneurs is lowest in China at 35, compared to 46 in the UK, Germany and France. The average age of growth entrepreneurs in the US is one of the highest globally at 50; although Belgium has the highest average at nearly 52.

3. Obstacles: All respondents saw the macro-economic climate as a major obstacle, while maintaining profit and cash flow were a problem for most. Taxation ranged as negative from 39% to 74% in the EU countries, with the UK and US above 50%. Brazil (61%), Russia (68%) and South Africa (41%) also saw this as a major negative issue though Chinese business was essentially neutral and Indian entrepreneurs (62%) saw their tax system as a positive. Recruiting people with the right skills and training was a major challenge in the UK, as well as in Germany, Spain and South Africa where 40% saw this as an issue. 

4. Being innovative: Growth firms in Brazil, China and South Africa stand out in all areas of innovation, with Brazilian (55%), Chinese (71%) and South African (47%) companies are more likely to have invested in R&D than their counterparts in the US (41%) and Germany (22%).There is a particularly strong and significant correlation between spending on R&D and being innovative across all areas, from products new to market to new approach to technology or sector. France, India and Russia had the lowest innovation levels and investment.

- ends -

For more information, please contact:

Bernard Carey, Delta Economics

bernardcarey@deltaeconomics.com

Helen Thompson, ACCA Newsroom

+44 (0)20 7059 5759

+44 (0)7725 498654

helen.thompson@accaglobal.com

Notes to Editors


About the report

-  High growth SMEs: understanding the leaders of the recovery report asks and attempts to answer several questions. How have growth oriented entrepreneurs fared during the global recession? What are the challenges faced by and sources of motivation for these entrepreneurs? What growth strategies do they adopt (including sources of finance and advice)? What are the main drivers of growth? What are the differences in and between the major European and US economies and those in the fast emerging markets of the BRICSA (and the corollary, where are they similar)? The implications of these findings for governments, financiers and advisors are then considered in terms of what support entrepreneurs need to build sustainable companies.

- The report examines the data from the Delta Economics ‘Challenges and Opportunities for Growth and Sustainability‘ (COGS) surveys of entrepreneurs in BRICSA countries, (Brazil, Russia, India, China and South Africa), in the US and in Europe (UK, France, Germany, Italy, Spain, Belgium and the Netherlands) conducted between October 2010 and December 2011. The entrepreneurs run relatively young businesses (between 2 and 10 years’ old) and have turned over a minimum of $300,000 after the second year of trading. They are therefore ‘growth oriented’ and have survived the economic and financial traumas of the past four years.

About ACCA

ACCA (the Association of Chartered Certified Accountants) is the global body for professional accountants. We aim to offer business-relevant, first-choice qualifications to people of application, ability and ambition around the world who seek a rewarding career in accountancy, finance and management.

Founded in 1904, we support our 154,000 members and 432,000 students in 170 countries, helping them to develop successful careers in accounting and business, with the skills required by employers. We work through a network of over 80 offices and centres and more than 8,400 Approved Employers worldwide, who provide high standards of employee learning and development. Through our public interest remit, we promote appropriate regulation of accounting and conduct relevant research to ensure accountancy continues to grow in reputation and influence.

About Delta Economics

Delta Economics is a leading market intelligence and research led economics consultancy specialising in:

- Economic growth and trade modelling and forecasting.

- Quantitative and qualitative market research, market intelligence and thought leadership with a particular emphasis on small businesses, entrepreneurs and business growth

We see economics as a tool to help businesses make decisions rather than as an end in itself.  Our research is always focused on how it is useful as well as how it is interesting.

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